Roughgarden's new paper: equilibria in lemon markets keep a constant fraction of trade gains
chaumian · x · 2026-11-15
A new arXiv paper, The Price of Anarchy in Markets for Lemons by Naveen Durvasula and Tim Roughgarden, studies worst-case equilibrium gains from trade in simple bilateral trade mechanisms with interdependent valuations.
- Prices can convey the proposer's private information, making equilibria complex and losing gains from trade via both screening inefficiency and adverse selection.
- The authors identify broad conditions under which sequential equilibria still guarantee a constant fraction of first-best gains from trade, quantifying the key role of rare pessimistic seller signals and rare optimistic buyer signals.
- Results cover seller-proposer, buyer-proposer, and random-proposer mechanisms; the key idea relates equilibrium gains to proposer profits in an auxiliary market with independent private values.
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