American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Entry-Proofness and Discriminatory Pricing under Adverse Selection
American Economic Review
vol. 111,
no. 8, August 2021
(pp. 2623–59)
Abstract
This paper studies competitive allocations under adverse selection. We first provide a general necessary and sufficient condition for entry on an inactive market to be unprofitable. We then use this result to characterize, for an active market, a unique budget-balanced allocation implemented by a market tariff making additional trades with an entrant unprofitable. Motivated by the recursive structure of this allocation, we finally show that it emerges as the essentially unique equilibrium outcome of a discriminatory ascending auction. These results yield sharp predictions for competitive nonexclusive markets.Citation
Attar, Andrea, Thomas Mariotti, and François Salanié. 2021. "Entry-Proofness and Discriminatory Pricing under Adverse Selection." American Economic Review, 111 (8): 2623–59. DOI: 10.1257/aer.20190189Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory