The Market for Lemons with Seller Partition

32 Pages Posted: 23 Oct 2019

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Akaki Mamageishvili

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Oriol Tejada

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: October 2019

Abstract

We introduce a four-stage, multi-prize buying mechanism, which can be used by a (big) buyer to separate low-quality sellers, called "lemon" owners, from high-quality sellers. When the pool of sellers can be partitioned into groups with known mixes of high- and low-quality sellers, the buyer obtains the commodities from the high-quality sellers at a price that matches the willingness to sell. By contrast, "lemon" owners are trapped into selling their items at a low, or even negligible, price. These properties hold even if the buyer cannot commit to a single execution of the mechanism. We outline some applications of our results and suggest that our mechanism might be useful for market makers.

Keywords: Lemons market - Partition - Signaling - Commitment - Decoy ballots

JEL Classification: C72, D4, D82, D86

Suggested Citation

Gersbach, Hans and Mamageishvili, Akaki and Tejada, Oriol, The Market for Lemons with Seller Partition (October 2019). CEPR Discussion Paper No. DP14063. Available at SSRN: https://ssrn.com/abstract=3474435

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
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+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Akaki Mamageishvili

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Oriol Tejada

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
41446329693 (Phone)

HOME PAGE: http://www.cer.ethz.ch/mip/people/toriol

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