Investing to access an adverse selection market

Abstract

I analyse a market with asymmetric information and interdependent values. Accessing the market is costly and stochastic, e.g. requires lobbying, licences or R&D. For a range of parameter values, interventions that raise production or entry costs for all seller types increase trade, investment and payoff for all types. This effect is driven by a novel feedback loop between the market composition and the investment in access. Show more