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Imperfect competition and efficiency in lemons markets\ud

By Abhinay Muthoo and Suresh Mutuswami

Abstract

This paper studies the impact of competition on the degree of inefficiency in lemons markets. More precisely, we characterize the second-best mechanism (i.e., the optimal mechanism with private information) in a stylized 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. The relationship between the first-best and second-best mechanisms is also explored. \ud \u

Topics: HB
Publisher: University of Warwick. Dept. of Economics
Year: 2010
OAI identifier: oai:wrap.warwick.ac.uk:3515

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