The Market for Lemons with Seller Partition
Hans Gersbach (),
Akaki Mamageishvili and
No 14063, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We introduce a four-stage, multi-prize buying mechanism, which can be used by a (big) buyer to separate low-quality sellers, called "lemon" owners, from high-quality sellers. When the pool of sellers can be partitioned into groups with known mixes of high- and low-quality sellers, the buyer obtains the commodities from the high-quality sellers at a price that matches the willingness to sell. By contrast, "lemon" owners are trapped into selling their items at a low, or even negligible, price. These properties hold even if the buyer cannot commit to a single execution of the mechanism. We outline some applications of our results and suggest that our mechanism might be useful for market makers.
Keywords: Lemons; market; -; Partition; -; Signaling; -; Commitment; -; Decoy; ballots (search for similar items in EconPapers)
JEL-codes: C72 D4 D82 D86 (search for similar items in EconPapers)
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