Asymmetric information in bilateral trade and in markets: An inversion result

Stephan Lauermann

Journal of Economic Theory, 2012, vol. 147, issue 5, 1969-1997

Abstract: I consider bilateral trade between a seller and a buyer with private valuations. The seller makes a take-it-or-leave-it price offer. If the seller observes the buyerʼs valuation (symmetric information), bilateral trade is trivially efficient. If the seller cannot observe the valuation (asymmetric information), bilateral trade is inefficient. This bilateral trading game is embedded into a large matching market. In the steady-state equilibrium of the market game, the relation between the informational regime and efficiency is inverted: With small frictions efficiency obtains if information is asymmetric. If information is symmetric, however, the trading outcome can be very inefficient—even if frictions vanish.

Keywords: Dynamic matching and bargaining games; Decentralized markets; Consumer privacy; Search frictions; Asymmetric information (search for similar items in EconPapers)
JEL-codes: C78 D82 D83 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:147:y:2012:i:5:p:1969-1997

DOI: 10.1016/j.jet.2012.05.021

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