Entry-Proofness and Discriminatory Pricing under Adverse Selection
- American Economic Review (Forthcoming)
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
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