On Durable Goods Markets with Entry and Adverse Selection
We investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time. The model is a dynamic version of Akerlof (1970). Identical cohorts of durable goods, whose quality is known only to potential sellers, enter the market over time. We show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry. Market failure is reflected in the length of waiting time before trade. The model also provides an explanation of market fluctuations.
|Keywords||Akerlof, adverse selection, durable goods, durables, market entry|
|Persistent URL||dx.doi.org/10.1111/j.0008-4085.2004.00238.x, hdl.handle.net/1765/11631|
Janssen, M.C.W., & Roy, S.. (2004). On Durable Goods Markets with Entry and Adverse Selection. Canadian Journal of Economics, 37(3), 552–589. doi:10.1111/j.0008-4085.2004.00238.x