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Imperfect competition and efficiency in lemons markets
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Muthoo, Abhinay and Mutuswami, Suresh (2011) Imperfect competition and efficiency in lemons markets. The Economic Journal, Vol.121 (No.552). pp. 580-594. doi:10.1111/j.1468-0297.2011.02425.x ISSN 00130133.
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Official URL: http://dx.doi.org/10.1111/j.1468-0297.2011.02425.x
Abstract
This article studies the impact of competition on the degree of inefficiency in lemons markets. More precisely, we characterise the second-best mechanism (i.e. the optimal mechanism with private information) in a stylised lemons market with finite numbers of buyers and sellers. We then study the relationship between the degree of efficiency of the second-best mechanism and market competitiveness. A general message of our results is that increasing competition may not help lemons markets in some circumstances. Moreover, increasing competition beyond a certain degree increases the distance between the first-best and second-best levels of efficiency.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Markets, Information asymmetry, Adverse selection (Insurance), Competition, Imperfect | ||||
Journal or Publication Title: | The Economic Journal | ||||
Publisher: | Wiley-Blackwell Publishing Ltd. | ||||
ISSN: | 00130133 | ||||
Official Date: | May 2011 | ||||
Dates: |
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Volume: | Vol.121 | ||||
Number: | No.552 | ||||
Page Range: | pp. 580-594 | ||||
DOI: | 10.1111/j.1468-0297.2011.02425.x | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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