Costs and Benefits of Dynamic Trading in a Lemons Market (SSRN)
Authors: William Fuchs, University of California, Berkeley – Haas School of Business; Andrzej Skrzypacz, Stanford Graduate School of Business; Date: September 3, 2013
Stanford University Graduate School of Business Research Paper No. 2133; Stanford University Graduate School of Business Research Paper No. 13-4
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 be always improved upon.