(Non)exclusive Contracting under Adverse Selection: An Experiment∗

The performance of markets with hidden information is of central importance in microeconomic theory. We present the results of a comprehensive experiment that distinguishes between the two crucial forms of hidden information, private and common values, in different contracting environments. Contracting environments vary by the degree of power that the screening market side has over the trades of its privately informed customers, from monopoly to nonexclusive competition. The degree of equilibrium play, in particular in the complex cases of common values, is striking. Under private values, competition ensures efficient trades. Under common values, low-type buyers are to a large extent excluded under nonexclusive competition, while such types are only distorted under exclusive competition. This leads to a significantly higher market surplus under exclusive compared to nonexclusive competition under common values. JEL classification: D82; L10; C92.