Price Signaling and Bargains in Markets with Partially Informed Populations

Mark Schneider () and Daniel Stephenson
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Mark Schneider: The University of Alabama, Culverhouse College of Business

Working Papers from Chapman University, Economic Science Institute

Abstract: Classical studies of asymmetric information focus on situations where only one side of a market is informed. This study experimentally investigates a more general case where some sellers are informed and some buyers are informed. We establish the existence of semiseparating perfect Bayesian equilibria where prices serve as informative signals of quality to uninformed buyers, while informed buyers can often leverage their informational advantage by purchasing high quality items from uninformed sellers at bargain prices. These models provide a rational foundation for the co-existence of bargains, price signaling, and Pareto efficiency in markets with asymmetric information. We test these theoretical predictions in a controlled laboratory experiment where agents repeatedly participate in markets with asymmetric information. We observe long run behavior consistent with equilibrium predictions of price signaling, bargains, and partial-pooling behavior.

JEL-codes: C7 C9 D4 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-exp and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:19-27

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