NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Nick Netzer

Department of Economics
University of Zurich
Bluemlisalpstrasse 10
8006 Zurich, Switzerland

E-Mail: nick.netzer@econ.uzh.ch

NBER Working Papers and Publications

October 2012A Game Theoretic Foundation of Competitive Equilibria with Adverse Selection
with Florian Scheuer: w18471
We construct a fully specified extensive form game that captures competitive markets with adverse selection. In particular, it allows firms to offer any finite set of contracts, so that cross-subsidization is not ruled out. Moreover, firms can withdraw from the market after initial contract offers have been observed. We show that a subgame perfect equilibrium always exists and that, in fact, when withdrawal is costless, the set of subgame perfect equilibrium outcomes may correspond to the entire set of feasible contracts. We then focus on robust equilibria that exist both when withdrawal costs are zero and when they are arbitrarily small but strictly positive. We show that the Miyazaki-Wilson contracts are the unique robust equilibrium outcome of our game. This outcome is always constraine...

Published: Nick Netzer & Florian Scheuer, 2014. "A Game Theoretic Foundation Of Competitive Equilibria With Adverse Selection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 399-422, 05. citation courtesy of

 
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