Using data from the Frankfurt Stock Exchange we analyze price formation and liquidity in a non-anonymous environment with similarities to the floor of the NYSE. Our main hypothesis is that the non-anonymity allows the specialist to assess the probability that a trader trades on the basis of private information. He uses this knowledge to price discriminate. This can be achieved by quoting a larg...

This article is devoted to adverse selection problems in which individual private information is a whole utility function and cannot be reduced to some nite-dimensional parameter. In this case, incentive compatibility conditions can be conveniently expressed using some abstract convexity notions arising in Mass Transfer Theory 8]. After this characterization is provided, an existence result of ...

We illustrate the corrosive e¤ect of even small amounts of adverse selection in an asset market and how it can lead to the total breakdown of trade. The problem is the failure of “market con…dence”, de…ned as approximate common knowledge of an upper bound on expected losses. Small probability events can unravel market con…dence. We discuss the role of contagious adverse selection and the proble...

This paper introduces a sequential search model with adverse selection. We study information aggregation by the price–how close the equilibrium prices are to the full information prices–when the search frictions are small. We identify circumstances under which prices fail to aggregate information well even when the search frictions are small. We trace this to a strong form of the winner’s curse...