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Imperfect Competition and Efficiency in Lemons Markets

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  • Muthoo, Abhinay

    (Department of Economics, University of Warwick)

  • Mutuswami, Suresh

    (Department of Economics, University of leicester)

Abstract

This paper studies the impact of competition on the degree of inefficiency in lemons markets. More precisely, we characterize the second-best mechanism (i.e., the optimal mechanism with private information) in a stylized lemons market with finite numbers of buyers and sellers. We then study the relationship between the degree of efficiency of the second-best mechanism and market competitiveness. The relationship between the first-best and second-best mechanisms is also explored. JEL Classification: C7 ; D4 ; D61 ; D82

Suggested Citation

  • Muthoo, Abhinay & Mutuswami, Suresh, 2010. "Imperfect Competition and Efficiency in Lemons Markets," The Warwick Economics Research Paper Series (TWERPS) 939, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:939
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Yuk Ying Chang & Martin Young, 2015. "Dissipative Competition: Evidence from a Quasi-Natural Experiment," International Review of Finance, International Review of Finance Ltd., vol. 15(2), pages 169-198, June.

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    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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