Dynamic signaling and market breakdown

Ilan Kremer*, Andrzej Skrzypacz

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

30 Scopus citations


We consider the effects a public revelation of information (e.g. rating, grade) has on trading in a dynamic signaling model. Competing buyers offer prices to a privately informed seller who can reject them and delay trade. Delay is costly and the seller has no commitment to its duration. The external public information allows for signaling in equilibrium. More interestingly, we characterize the dynamics of trade and prices. If signals are noisy, no trade takes place just before the revelation of external information. If signals are fully revealing, then trade occurs even close to revelation, however, transaction prices are discontinuous.

Original languageAmerican English
Pages (from-to)58-82
Number of pages25
JournalJournal of Economic Theory
Issue number1
StatePublished - Mar 2007
Externally publishedYes

Bibliographical note

Funding Information:
We thank Peter DeMarzo and Jeroen Swinkels for many helpful suggestions and conversations. The second author acknowledges the financial support of the Center for Electronic Business and Commerce.


  • Bargaining
  • Dynamic
  • Screening
  • Signaling


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