DP14063 Lemons and Peaches: A (Robust) Multi-stage Buying Mechanism with Multiple Applications

Author(s): Hans Gersbach, Akaki Mamageishvili, Oriol Tejada
Publication Date: October 2019
Date Revised: July 2020
Keyword(s): Lemons market - Partition - Signaling - Commitment - Market maker - Vote-buying - Lobbying - Decoy ballots
JEL(s): C72, D4, D7, D72, D82, D86
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14063

We introduce a four-stage, multi-price buying mechanism, which can be used by a (big) buyer to separate low-quality sellers - called "lemon" owners - from high-quality sellers - called "peach" owners. With a partition of sellers, the buyer obtains the commodities from the "peach" owners at a price that matches the willingness to sell. By contrast, "lemon" owners are trapped into selling their items at a low, or even negligible, price. Our mechanism is robust for several extensions of our baseline setup, offers applications for market makers and regulators, and may be used by interest groups in politics.