“Information about Sellers” by Kyungmin (Teddy) Kim
Kyungmin (Teddy) Kim
The Hong Kong University of Science & Technology
In dynamic markets under adverse selection, buyers' inferences on the quality of goods rely on the information they have about sellers' past behavior. This paper examines the roles of different pieces of information about sellers' past behavior in the market for lemons. Agents match randomly and bilaterally, and buyers make take-it-or-leave-it offers to sellers. It is shown that when market frictions are small (low discounting or fast matching), the observability of time-on-the-market improves market efficiency, while that of number-of-previous-match deteriorates it. When market frictions are not small, the latter may improve efficiency. The results suggest that market efficiency is not monotone in the amount of information available to buyers but crucially depends on what information is available under what market conditions.