6.5 ENDOGENOUS ASYMMETRIES OF INFORMATION AT TIME OF
CONTRACTING
To this point, the parties have been endowed with private information. In many situa-
tions, their private information arises because of actions they take; that is, it is endogenous.
For instance, a seller’s decisions about materials, production methods, and the like could
determine the quality of her product. As a second example, a buyer could make invest-
ments in complementary assets that affect his utility from purchasing the seller’s product
(e.g., a buyer’s utility from buying a new dvd player could depend on the number of
dvds previously acquired). ...
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