Costs and benefits of dynamic trading in a lemons market Articles uri icon

publication date

  • July 2019

start page

  • 105

end page

  • 127

volume

  • 33

International Standard Serial Number (ISSN)

  • 1094-2025

Electronic International Standard Serial Number (EISSN)

  • 1096-6099

abstract

  • We study a dynamic market with asymmetric information that creates the lemons problem. We compare efficiency of the market under different assumptions about the timing of trade. We identify positive and negative aspects of dynamic trading, describe the optimal market design under regularity conditions and show that continuous-time trading can always be improved upon if sellers are present at . Instead, continuous trading is optimal if sellers arrive stochastically over time.

keywords

  • adverse selection; bankruptcy; market design; trading frequency