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Price-setting with asymmetric information

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Price-Setting with Asymmetric Information: Consider the Market for Lemons model from class, where the quality is uniformly distributed on [0, l], the value to the buyer is vq and the 1value for sellers is g. Consider a trading mechanism in which the buyer offers a price for a used car, then selects at random among those willing to sell at the stated price. Assume that U & 2 and that there are a large number of sellers in the market (ie. for any price the buyer offers, she can always ?nd someone to sell at that price). What price would the buyer set? Explain why she would set a price higher than she needs to in order to purchase a car.

Reference no: EM133063285

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