Information Asymmetry, Consumer behavior and Market Equilibrium

In a perfectly competitive market we simply assume that full knowledgeable sellers and buyers have full information about the market condition and the information is free and costless. The firm is a price taker and has an infinitely elastic demand curve. But this is not generally happened in information asymmetry ad adverse section may occur. Equilibrium does not necessarily depict a single price rather it is characterized by a distribution set of price. Here the potential buyers and sellers are not price takers rather price setters. Multiple price equilibrium are quite similar to it but they differ only due to asymmetric information. Thus, in a buyers ’ equilibrium no seller will be benefited for announcing his own price. But in a seller’s equilibrium (when all sellers have distinct price) some buyers may be benefitted by announcing their price. This is because the presence of adverse selection may induce a bias towards the market adopting a convention in which the buyers act as price setters