Incentive Efficient Market Design∗

I study an environment with many competing uninformed sellers, one informed buyer, common values and exclusive contracts. I build on the seminal contributions of Rothschild-Stiglitz (1976), Myerson (1983) and Maskin-Tirole (1992) to construct a novel market mechanism, that combines signaling and screening features, and implements interim incentive efficient allocations as equilibria. In the market, the buyer moves first and proposes a menu of contracts. The proposal is accepted or rejected by each one of the sellers. In case no seller accepts, the game ends with no trade. If at least one seller accepts, she has the right to make a counter-proposal of a new menu of contracts. The combination of the two proposed menus of contracts forms a mechanism. The buyer has access to any of the mechanisms available in the market. However, he can sign only one contract with only one seller at a time. The Rothschild-Stiglitz-Wilson allocation is defined as the allocation that maximises the payoff of each type of the buyer within the set of incentive compatible allocations that make positive expected profits irrespective of the beliefs of the sellers. I show that the RothschildStiglitz-Wilson allocation is the unique equilibrium allocation, or a strong solution, when it is not Pareto dominated. Every interim incentive efficient allocation that strictly Pareto dominates the Rothschild-Stiglitz-Wilson allocation is an equilibrium allocation and corresponds to a neutral optimum. The buyer is inscrutable in the sense that he never needs to disclose his type with his proposal. Bertrand-type competition among sellers drives expected profits to zero and demands every equilibrium allocation to be interim incentive efficient. The approach is not restricted to only two types but it is extended to any finite number of types.