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DYNAMIC TRADING IN A DURABLE GOOD MARKET WITH ASYMMETRIC INFORMATION*
Author(s) -
JANSSEN MAARTEN C. W.,
ROY SANTANU
Publication year - 2002
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.t01-1-00011
Subject(s) - quality (philosophy) , information asymmetry , microeconomics , private information retrieval , durable good , economics , set (abstract data type) , complete information , market share , computer science , finance , philosophy , computer security , epistemology , programming language
We analyze a dynamic version of the Akerlof–Wilson “lemons” market in a competitive durable good setting. There is a fixed set of sellers with private information about the quality of their wares. The price mechanism sorts sellers of different qualities into different time periods—prices and average quality of goods traded increase over time. Goods of all qualities are traded in finite time. Market failure arises because of the waiting involved—particularly for sellers of better quality. The equilibrium path may exhibit intermediate breaks in trading.