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Few bad apples or plenty of lemons: which makes it harder to market plums?

Adriani, Fabrizio and Deidda, Luca Gabriele (2004) Few bad apples or plenty of lemons: which makes it harder to market plums? Cagliari, CRENoS-CUEC. p. 45 (Working Papers CRENoS, 2004, 13). Working Paper.

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We analyse a competitive commodity market with a large number of buyers and sellers where: a. Individual qualities, either high or low, are not observable by buyers; b. Sellers strategically announce prices and buyers decide whether to buy having observed sellers’ actions. We find that the set of robust equilibria includes only fully separating equilibria. In any robust equilibrium the low quality is always traded. The high quality is traded if demand is sufficiently strong, so that low quality sellers are unable to satisfy all buyers, and is never traded otherwise. Hence, few rotten apples is better than a plentiful of lemons for plums’ sellers.

Item Type:Working Paper
ID Code:90
Uncontrolled Keywords:Market for lemons, adverse selection, D1, price-setting, off-equilibrium
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/01 Economia politica
Divisions:002 Altri enti e centri di ricerca del Nord Sardegna > CRENoS-Centro Ricerche Economiche Nord Sud, Università di Cagliari e Università di Sassari
001 Università di Sassari > 01 Dipartimenti > Economia, impresa, regolamentazione
Publisher Policy:Depositato per gentile concessione del CRENoS e di CUEC
Deposited On:18 Aug 2009 10:01

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