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, vol. 111, n. 8, March 2021, pp. 2623–2659.

Published in

American Economic Review, vol. 111, n. 8, March 2021, pp. 2623–2659