We find that manufacturers may gain from adverse selection. We also give an example in which the market allocation under adverse selection is socially optimal. An extension of the model to a world with many brands that differ in reliability leads to testable predictions of the effects of adverse selection. We show that unreliable car brands have steeper price declines and lower volumes of trade. This paper presents a multiple-discrete choice model for the analysis of demand of differentiated products.
Users maximize profits by choosing the number of units of each brand they purchase.
These two features distinguish this model from classical discrete choice models which consider only a single choice among mutually exclusive alternatives. The model is estimated using micro level data on personal computer purchases. The estimated demand structure is used to assess the welfare gains from computerization and technological innovation in peripherals industries. We develop a model to address in a unified manner four ways in which a monopolist can interfere with secondary markets. In the model consumers have heterogeneous valuations for quality and used markets play an allocative role.