On Durable Goods Markets with Entry and Adverse Selection

38 Pages Posted: 12 Jul 2004

See all articles by Maarten Janssen

Maarten Janssen

University of Vienna - Faculty of Business, Economics, and Statistics

Santanu Roy

Southern Methodist University (SMU) - Department of Economics

Abstract

We investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time. The model is a dynamic version of Akerlof (1970). Identical cohorts of durable goods, whose quality is known only to potential sellers, enter the market over time. We show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry. Market failure is reflected in the length of waiting time before trade. The model also provides an explanation of market fluctuations.

JEL Classification: D82

Suggested Citation

Janssen, Maarten C. W. and Roy, Santanu, On Durable Goods Markets with Entry and Adverse Selection. Available at SSRN: https://ssrn.com/abstract=563584

Maarten C. W. Janssen (Contact Author)

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Vienna, A-1210
Austria

Santanu Roy

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States

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