DP20786 Bilateral Learning Before Trading?

• Maarten Janssen Santanu Roy
26 Oct 2025

A buyer and a seller can privately learn the quality of an asset - initially unknown to both - by incurring a fixed cost before trading. Asset quality determines their valuations and the seller makes a take-it-or-leave-it price offer. Under a weak "lemons-like" condition, asymmetric information arises endogenously when learning costs are small; as these costs vanish, the seller learns for sure but the buyer remains uninformed with probability bounded away from zero. Nevertheless, efficient limiting equilibria always exist; the buyer earns strictly positive surplus in such an equilibrium if, and only if, she can learn after knowing the price offer.