Dynamic Adverse Selection and the Supply Size

In this paper we examine the problem of dynamic adverse selection in a stylized market
where the quality of goods is a seller’s private information while the realized distribution of qualities is public information. We show that in equilibrium all goods can
be traded if the size of the supply is publicly available to market participants. Moreover, we show that if exchanges can take place frequently enough, then agents roughly
enjoy the entire potential surplus from exchanges. We illustrate these findings with a
dynamic model of trade where buyers and sellers repeatedly interact over time. We
also identify circumstances under which only full trade equilibria exist. Further, we
give conditions for full trade to obtain when the realized distribution of qualities is not
public information and when new goods enter the market at later stages.