Entry-Proofness and Discriminatory Pricing under Adverse Selection
Andrea Attar, Thomas Mariotti, François Salanié
American Economic Review · 2021 · Volume 111 · Issue 8
Abstract
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 markets.
Keywords
Consumer Economics: Theory, Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection, Asymmetric and Private Information, Mechanism Design, Economics of Contract: Theory
Enable JavaScript for citation tools and additional paper interactions.