Article

Entry-Proofness and Discriminatory Pricing under Adverse Selection

Andrea Attar, Thomas Mariotti, and François Salanié

Abstract

This paper studies competitive allocations under adverse selection. We rst provide a general necessary and sucient condition for entry on an inactive market to be unprotable. We then use this result to characterize, for an active market, a unique budget-balanced allocation implemented by a market tari making additional trades with an entrant unprotable. Motivated by the recursive structure of this allocation, we nally 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

Adverse Selection; Entry-Proofness; Discriminatory Pricing; Nonexclusive; Markets; Ascending Auctions.;

JEL codes

  • D43: Oligopoly and Other Forms of Market Imperfection
  • D82: Asymmetric and Private Information • Mechanism Design
  • D86: Economics of Contract: Theory

Replaces

Andrea Attar, Thomas Mariotti, and François Salanié, Entry-Proofness and Discriminatory Pricing under Adverse Selection, TSE Working Paper, n. 17-788, March 2017, revised January 2021.

Reference

Andrea Attar, Thomas Mariotti, and François Salanié, Entry-Proofness and Discriminatory Pricing under Adverse Selection, American Economic Review, March 2021, forthcoming.

Published in

American Economic Review, March 2021, forthcoming