Competitive search markets for durable goods |
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Authors: | Roman Inderst Holger M Müller |
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Institution: | (1) Department of Economics, University College London, Gower Steet, London WC1E 6BT, UK (e-mail: r.inderst@ucl.ac.uk.; url: http//www.vwl.uni-mannheim.de/moldovan/roman.html), GB;(2) Department of Economics, University of Mannheim, A5, 68131 Mannheim, GERMANY (e-mail: hmueller@pool.uni-mannheim.de; url: http://www.vwl.uni-mannheim.de/hellwig/holger), DE |
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Abstract: | Summary. This paper considers a dynamic version of Akerlof's (1970) lemons problem where buyers and sellers must engage in search
to find a trading partner. We show that if goods are durable, the market itself may provide a natural sorting mechanism. In
equilibrium, high-quality goods sell at a higher price than low-quality goods but also circulate longer. This accords with
the common wisdom that sellers who want to sell fast may have to accept a lower price. We then compare the equilibrium outcomes
under private information with those under complete information. Surprisingly, we find that for a large range of parameter
values the quilibrium outcomes under the two information regimes coincide, despite the fact that circulation time is used
to achieve separation.
Received: August 24, 2000; revised version: October 24, 2000 |
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Keywords: | and Phrases: Lemons problem Durable goods Search markets |
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