Entry-Proofness and Discriminatory Pricing under Adverse Selection
- (pp. 2623-59)
AbstractThis 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.
CitationAttar, 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.20190189
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