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Lemonade from Lemons: Information Design and Adverse Selection

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  • Navin Kartik
  • Weijie Zhong

Abstract

A seller posts a price for a single object. The seller's and buyer's values may be interdependent. We characterize the set of payoff vectors across all information structures. Simple feasibility and individual-rationality constraints identify the payoff set. The buyer can obtain the entire surplus; often, other mechanisms cannot enlarge the payoff set. We also study payoffs when the buyer is more informed than the seller, and when the buyer is fully informed. All three payoff sets coincide (only) in notable special cases -- in particular, when there is complete breakdown in a ``lemons market'' with an uninformed seller and fully-informed buyer.

Suggested Citation

  • Navin Kartik & Weijie Zhong, 2023. "Lemonade from Lemons: Information Design and Adverse Selection," Papers 2305.02994, arXiv.org.
    • Handle: RePEc:arx:papers:2305.02994
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    References listed on IDEAS

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    3. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2023. "On the Alignment of Consumer Surplus and Total Surplus Under Competitive Price Discrimination," Cowles Foundation Discussion Papers 2373, Cowles Foundation for Research in Economics, Yale University.

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