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On durable goods markets with entry and adverse selection

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  • Maarten Janssen
  • Santanu Roy

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.

Suggested Citation

  • Maarten Janssen & Santanu Roy, 2004. "On durable goods markets with entry and adverse selection," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 552-589, August.
    • Handle: RePEc:cje:issued:v:37:y:2004:i:3:p:552-589
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    Cited by:

    1. Eeva Mauring, 2020. "Informational Cycles in Search Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 12(4), pages 170-192, November.
    2. Santanu Roy, 2014. "Dynamic sorting in durable goods markets with buyer heterogeneity," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(3), pages 1010-1031, August.
    3. Bilancini, Ennio & Boncinelli, Leonardo, 2016. "Dynamic adverse selection and the supply size," European Economic Review, Elsevier, vol. 83(C), pages 233-242.
    4. Igal Hendel & Alessandro Lizzeri & Marciano Siniscalchi, 2005. "Efficient Sorting in a Dynamic Adverse-Selection Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(2), pages 467-497.
    5. Djolaud, Guy, 2022. "Import Penetration of Low Quality Products : Markups Implications," MPRA Paper 114611, University Library of Munich, Germany.
    6. Palazzo, Francesco, 2017. "Search costs and the severity of adverse selection," Research in Economics, Elsevier, vol. 71(1), pages 171-197.
    7. Eeva Mauring, 2020. "Informational Cycles in Search Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 12(4), pages 170-192, November.
    8. Anindya Ghose, 2005. "Used Good Trade Patterns: A Cross-Country Comparison of Electronic Secondary Markets," Working Papers 05-19, NET Institute, revised Oct 2005.
    9. Klaus Kultti & Eeva Mauring & Juuso Vanhala & Timo Vesala, 2015. "Adverse Selection In Dynamic Matching Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 67(2), pages 115-133, April.
    10. Barsanetti, Bruno & Camargo, Braz, 2022. "Signaling in dynamic markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 206(C).

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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