Discussion paper

DP17615 Time Trumps Quantity in the Market for Lemons

We consider a dynamic adverse selection model where privately informed sellers of divisible assets choose when and how much to sell to competing buyers. With commitment, delay and lower quantities signal higher quality. Only the discounted quantity traded is pinned down in equilibrium. With spot contracts and observable
past trades, there is a unique, fully separating path of trades in equilibrium. Regardless of the trade horizon or trade frequency, the same welfare is attained as in the commitment case. With continuous trading, delay alone signals higher quality. With privately observable trades the equilibrium coincides only when trading takes place continuously.


Fuchs, W, P Gottardi and H Moreira (2022), ‘DP17615 Time Trumps Quantity in the Market for Lemons‘, CEPR Discussion Paper No. 17615. CEPR Press, Paris & London. https://cepr.org/publications/dp17615