Adverse Selection by Markets and the Advantage of Being Late

J. Luis Guasch and Andrew Weiss

The Quarterly Journal of Economics, 1980, vol. 94, issue 3, 453-466

Abstract: Among firms entering a market sequentially, operating under imperfect information and hiring workers with the same observable characteristics, it is shown that in the presence of transaction costs or "lock-in" effects each new firm offers a wage above the one previously offered and obtains higher profits than previous entrants. On average, each new firm gets more able workers than the previous firms, and at any point in time those workers employed by firms are less able than those self-employed. Also, it is shown that a Nash equilibrium entry ordering for firms exits.

Date: 1980
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