Toomas Mariotti (TSE) (webinar)
13 October 2020 @ 12:00 - 13:15
“Entry-Proofness and Discriminatory Pricing under Adverse Selection”
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, in 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.