Document Type
Article
Publication Date
11-27-2019
Abstract
Classical studies of asymmetric information focus on situations where only one side of a market is informed. This study experimentally investigates a more general case where some sellers are informed and some buyers are informed. We establish the existence of semiseparating perfect Bayesian equilibria where prices serve as informative signals of quality to uninformed buyers, while informed buyers can often leverage their informational advantage by purchasing high quality items from uninformed sellers at bargain prices. These models provide a rational foundation for the co-existence of bargains, price signaling, and Pareto efficiency in markets with asymmetric information. We test these theoretical predictions in a controlled laboratory experiment where agents repeatedly participate in markets with asymmetric information. We observe long run behavior consistent with equilibrium predictions of price signaling, bargains, and partial-pooling behavior.
Recommended Citation
Schneider, M., & Stephenson, D.G. (2019). Price signaling and bargain hunting in markets with partially informed populations. ESI Working Paper 19-27. Retrieved from https://digitalcommons.chapman.edu/esi_working_papers/287/
Comments
ESI Working Paper 19-27