We investigate the nature of market failure in a dynamic version of Akerlof (1970) where identical cohorts of a durable good enter the market over time. In the dynamic model, equilibria with qualitatively different properties emerge. Typically, in equilibria of the dynamic model, sellers with higher quality wait in order to sell and wait more than sellers of lower quality. Our main result is that for any distribution of quality that there exist an infinite number of cyclical equilibria where all goods are traded within a certain number of periods after entering the market.

asymmetric information, durable goods, dynamic trading, entry
Asymmetric and Private Information (jel D82)
Tinbergen Institute Discussion Paper Series
Tinbergen Institute

Janssen, M.C.W, & Karamychev, V.A. (2000). Cycles and Multiple Equilibria in the Market for Durable Lemons (No. TI 00-025/1). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/7694