CFDP 1986

Transparency and Distressed Sales under Asymmetric Information

Author(s): 

Publication Date: February 2015

Pages: 42

Abstract: 

We analyze price transparency in a dynamic market with private information and correlated values. Uninformed buyers compete inter- and intra-temporarily for a good sold by an informed seller suffering a liquidity shock. We contrast public versus private price offers. In a two-period case all equilibria with private offers have more trade than any equilibrium with public offers; under some additional conditions we show Pareto-dominance of the private-offers equilibria. If a failure to trade by the deadline results in an efficiency loss, public offers can induce a market breakdown before the deadline, while trade never stops with private offers.

Keywords: 

Adverse selection, Transparency, Distress, Market design, Volume

JEL Classification Codes:  D82, G14, G18