Events at CERGE-EI

Sarah Auster, Ph.D.

Bocconi University, Milan, Italy

Authors: Sarah Auster and Piero Gottardi

Abstract: We consider a model of competing mechanisms in an environment with asymmetric information and common values. There is a measure of uninformed buyers and a measure of privately informed sellers, who know whether the quality of their good is high or low. Buyers post general direct mechanisms, sellers choose where to direct their search, and the meeting technology is urn-ball matching. We show that there exists an equilibrium in which all buyers post the same reverse auction and sellers randomize across them. Thus, sellers are pooled ex-ante and screened ex-post. This equilibrium is unique in terms of payoffs. We demonstrate that there exist other payoff equivalent equilibria in which sellers partially sort ex-ante if and only if the common value component is sufficiently large. We further show that, in contrast to the private values case, the search equilibrium can be constrained inefficient. In particular, if the gains from trade of the high quality good outweigh the gains from trade of the low quality good, inefficiencies arise because high quality is traded too rarely.

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