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The well-known double marginalization problem understates the inefficiencies arising from vertical relations in consumer search markets where consumers are uninformed about the wholesale prices charged by manufacturers to retailers. Consumer search provides a monopoly manufacturer with an additional incentive to increase its price, worsening the double marginalization problem and lowering the manufacturer's profits. Nevertheless, manufacturers in more competitive wholesale markets may not have an incentive to reveal their prices to consumers. We show that retail prices decrease in search cost, and so both industry profits and consumer surplus increase in search cost. (JEL D11, D42, D83, L12, L25, L60, L81)

Abstract.  We investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time. The model is a dynamic version of Akerlof (1970). Identical cohorts of durable goods, whose quality is known only to potential sellers, enter the market over time. We show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry. Market failure is reflected in the length of waiting time before trade. The model also provides an explanation of market fluctuations. JEL classification: D82A propos des marchés de biens durables quand il y a entrée de nouveaux commerçants et sélection adverse.  Les auteurs analysent la nature du commerce et du triage engendrés par le mécanisme dynamique des prix dans un marché concurrentiel de biens durables quand il y a sélection adverse et entrée exogène de nouveaux commerçants dans le temps. Ce modèle est une version dynamique du modèle d'Akerlof (1970). Des cohortes identiques de biens durables, dont la qualité est connue seulement des vendeurs potentiels, arrivent sur le marché dans le temps. Il semble qu'il y ait plus de commerce actif que ce qui est prévu par un modèle statique. En particulier, on montre qu'il existe un équilibre cyclique où tous les biens sont transigés à l'intérieur d'un nombre fini de périodes après leur arrivage et que, à chaque phase du cycle, l'éventail de qualité des biens transigés s'accroît. Les commerçants qui transigent des produits de plus haute qualité attendent plus longtemps et l'imperfection du marché se traduit par la longueur de temps d'attente avant la transaction. Le modèle fournit aussi une explication des fluctuations du marché.

This paper considers a government auctioning off multiple licenses to firms who compete in a market after the auction. Firms have different costs, and cost efficiency is private information at the auction stage and the market competition stage. If only one license is auctioned, standard results say that the most efficient firm wins the auction (license) as it will get the highest profit in the aftermarket, i.e., it has the highest valuation for the license. This paper argues that this result does not generalize to the case of multiple licenses and aftermarket competition. In particular, we determine conditions under which auctions may select inefficient firms and therefore lead to an inefficient allocation of resources. Strategic interactions in the aftermarket, in particular firms' preferences to compete with the least cost-efficient firms rather than with the most efficient firms, are responsible for our result.

There is increasing empirical and experimental evidence thatproviding financial incentives to agents to performcertain socially desirable actions may permanently reduce other typesof motivations to undertake these actions.We study the impact of financial incentives on the desire for socialapproval, using the example of blood donation.We show that in a society with altruists and egoists, who all careabout social approval, introducing a payment intoa voluntary system may actually decrease the amount of blood donated.Withdrawing the financial incentive doesnot restore the norm to donate and may reduce the supply of bloodeven further.