Entry-Proofness and Market Breakdown under Adverse Selection

This paper develops a unified approach to entry-proofness in adversely selected markets. We first provide a necessary and sufficient condition for entry on an inactive market to be unprofitable. For active markets, we characterize the unique budgetbalanced market tariff preventing entry by a seller offering complementary trades. These results yield sharp predictions for competitive outcomes of nonexclusive markets, which we use to construct a new test for evidence of private information in insurance.