Nah, it keeps going. If we assume everyone with a value above the average leaves, then the average falls to nothing at all. My point is just that it doesn’t make sense for someone to leave the market, unless we are positing they have reserve prices.
Ok i think I get the point about reserve prices but still don't think the average value thing is right. Maybe not in all cases but it definitely seems like there's a stable outcome where, 2 goods exist and only 1 is traded bc of limited ability to observe quality. A market for lemons lol. Once the bad drives out the good there's no reason for trades to not occur – you just a normal market for the bad good
Respectfully,
This seems too smart by half, and probably wrong even though I'm not precisely sure why
"In the limit, no transactions occur, because everyone has left the market"
Isn't it that only lemons are bought and sold. Transactions do occur but only for the adverse selection item at the adverse selection price.
Nah, it keeps going. If we assume everyone with a value above the average leaves, then the average falls to nothing at all. My point is just that it doesn’t make sense for someone to leave the market, unless we are positing they have reserve prices.
Ok i think I get the point about reserve prices but still don't think the average value thing is right. Maybe not in all cases but it definitely seems like there's a stable outcome where, 2 goods exist and only 1 is traded bc of limited ability to observe quality. A market for lemons lol. Once the bad drives out the good there's no reason for trades to not occur – you just a normal market for the bad good