Endogenous Offer Arrival in the Market for Lemons

Abstract

We allow buyers to choose the timing of offers in a dynamic adverse selection model with a single seller. Buyers have private information and can delay their one-time private offers to learn from other buyers by observing trading behavior. We find that the equilibrium exhibits maximum delay in the sense that all buyers delay their offers until the last period. In the infinite horizon limit, buyers do not make offers in finite time. Moreover, the presence of many buyers exacerbates delay, leading to a high probability of delay in trade even under optimistic initial beliefs. The results suggest that endogenizing the timing of offer arrival in adverse selection markets critically affects equilibrium behavior.

Keywords: Dynamic adverse selection, endogenous timing, social learning, lemons market, winner's curse, bargaining

JEL Classification: C72, C73, D82, D83