Bilateral Learning Before Trading?

Maarten Janssen and Santanu Roy

No 20786, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A buyer and a seller can privately learn the quality of an asset - initially unknown to both - by incurring a fixed cost before trading. Asset quality determines their valuations and the seller makes a take-it-or-leave-it price offer. Under a weak "lemons-like" condition, asymmetric information arises endogenously when learning costs are small; as these costs vanish, the seller learns for sure but the buyer remains uninformed with probability bounded away from zero. Nevertheless, efficient limiting equilibria always exist; the buyer earns strictly positive surplus in such an equilibrium if, and only if, she can learn after knowing the price offer.

JEL-codes: D43 D82 L13 L15 (search for similar items in EconPapers)
Date: 2025-10
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