Working Paper: CEPR ID: DP14063
Authors: Hans Gersbach; Akaki Mamageishvili; Oriol Tejada
Abstract: We introduce a four-stage, multi-price buying mechanism, which can be used by a (big) buyer to separate low-quality sellers - called "lemon" owners - from high-quality sellers - called "peach" owners. With a partition of sellers, the buyer obtains the commodities from the "peach" owners at a price that matches the willingness to sell. By contrast, "lemon" owners are trapped into selling their items at a low, or even negligible, price. Our mechanism is robust for several extensions of our baseline setup, offers applications for market makers and regulators, and may be used by interest groups in politics.
Keywords: lemons market; partition; signaling; commitment; market maker; vote-buying; lobbying; decoy ballots
JEL Codes: C72; D4; D7; D72; D82; D86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| devils menu mechanism (C78) | separation of high-quality sellers from low-quality sellers (L15) |
| partition of sellers (D16) | buyer's ability to extract surplus from sellers (D43) |
| messages indicating seller quality (L15) | prices offered by the buyer (D44) |
| prices offered by the buyer (D44) | truthful reporting of seller types (L81) |
| expected payoff for low-quality sellers (L15) | downward pressure on low-quality sellers to reveal true type (L15) |
| number of groups and structure of pricing mechanism (D49) | buyer's ability to extract surplus (D43) |