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Auctions with resale when private values are uncertain: Evidence from the lab and field

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Author Info

  • Lange, Andreas
  • List, John A.
  • Price, Michael K.

Abstract

Auction theory represents one of the richest areas of research in economics over the past three decades. Yet, whether, and to what extent, the introduction of secondary resale markets influences bidding behavior in sealed-bid first-price auctions remains under researched. This study begins by examining field data from a unique data set that includes nearly 3000 auctions (over 10,000 individual bids) for cutting rights of standing timber in British Columbia from 1996 to 2000. In comparing bidding patterns across agents who are likely to have resale opportunities with those who likely do not, we find evidence that is consistent with theory. Critical evaluation of the reduced-form bidding model, however, reveals that sharp tests of the theoretical predictions are not possible because several other differences may exist across these bidder types. We therefore use a laboratory experiment to examine if the resale opportunity by itself can have the predicted theoretical effect. We find that while it does have the predicted effect, a theoretical model based on risk-averse bidders explains the overall data patterns more accurately than a model based on risk-neutral bidders. Beyond testing theory, the paper highlights the inferential power of combining naturally occurring data with laboratory data.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 29 (2011)
Issue (Month): 1 (January)
Pages: 54-64

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Handle: RePEc:eee:indorg:v:29:y:2011:i:1:p:54-64

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Web page: http://www.elsevier.com/locate/inca/505551

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Keywords: Auctions with resale Experimental economics Timber Industry;

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References

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  9. Susan Athey, 2005. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Theory workshop papers 658612000000000098, UCLA Department of Economics.
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  13. Hansen, Robert G & Lott, John R, Jr, 1991. "The Winner's Curse and Public Information in Common Value Auctions: Comment," American Economic Review, American Economic Association, vol. 81(1), pages 347-61, March.
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  16. Andreas Lange & John A. List & Michael K. Price, 2004. "Auctions with Resale When Private Values Are Uncertain: Theory and Empirical Evidence," NBER Working Papers 10639, National Bureau of Economic Research, Inc.
  17. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, vol. 104(1), pages 247-272, May.
  18. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
  19. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.
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Cited by:
  1. Saral, Krista Jabs, 2012. "Speculation and demand reduction in English clock auctions with resale," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 416-431.

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