This paper studies competitive allocations under adverse selection. We first provide a general necessary and sufficient condition for entry on an inactive market to be unprofitable. We then use this result to characterize, for an active market, a unique budget-balanced allocation implemented by a market tariff making additional trades with an entrant unprofitable. Motivated by the recursive structure of this allocation, we finally show that it emerges as the essentially unique equilibrium outcome of a discriminatory ascending auction. These results yield sharp predictions for competitive nonexclusive markets.
Attar, A., Mariotti, T., Salanie, F. (2021). Entry-proofness and discriminatory pricing under adverse selection. THE AMERICAN ECONOMIC REVIEW, 111(8), 2623-2659 [10.1257/aer.20190189].
Entry-proofness and discriminatory pricing under adverse selection
Attar, AK
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2021-01-01
Abstract
This paper studies competitive allocations under adverse selection. We first provide a general necessary and sufficient condition for entry on an inactive market to be unprofitable. We then use this result to characterize, for an active market, a unique budget-balanced allocation implemented by a market tariff making additional trades with an entrant unprofitable. Motivated by the recursive structure of this allocation, we finally show that it emerges as the essentially unique equilibrium outcome of a discriminatory ascending auction. These results yield sharp predictions for competitive nonexclusive markets.File | Dimensione | Formato | |
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