Theoretical Economics 9 (2014), 1–40
Nonexclusive competition under adverse selection
Andrea Attar, Thomas Mariotti, François Salanié
A seller of a divisible good faces several identical buyers. The quality of the good may be low or high, and is the seller's private information. The seller has strictly convex preferences that satisfy a single-crossing property. Buyers compete by posting menus of nonexclusive contracts, so that the seller can simultaneously and privately trade with several buyers. We provide a necessary and sufficient condition for the existence of a pure-strategy equilibrium. Aggregate equilibrium trades are unique. Any traded contract must yield zero profit. If a quality is actually traded, then it is efficiently traded. Depending on parameters, both qualities may be traded, or only one of them, or the market may break down to a no-trade equilibrium.
Keywords: Adverse selection, competing mechanisms, nonexclusivity
JEL classification: D43, D82, D86
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