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Auctions with resale and bargaining power

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  • Cheng, Harrison
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    Abstract

    We show that when the weak bidder’s bargaining power in the resale market is weakened, the auctioneer’s revenue from the first-price auction with resale is lower. Using the idea of Coase Theorem, we show that when the resale market is a sequential bargaining model with no commitment, the auctioneer’s revenue is substantially reduced, and the ranking is the opposite of Hafalir and Krishna (2009). We establish a version of the Coase Theorem in the context of the auctions with resale. When Coase Theorem holds, we show that the revenue of the auction with resale is lower than the revenue of the same auction without resale. We also provide the existence and uniqueness of equilibrium for our model of auctions with resale.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304406811000814
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Mathematical Economics.

    Volume (Year): 47 (2011)
    Issue (Month): 3 ()
    Pages: 300-308

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    Handle: RePEc:eee:mateco:v:47:y:2011:i:3:p:300-308

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    Web page: http://www.elsevier.com/locate/jmateco

    Related research

    Keywords: Resale; Existence and uniqueness of equilibrium; Bargaining power; Auction revenue; Coase Theorem;

    References

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    1. Rod Garratt & Thomas Tröger, 2006. "Speculation in Standard Auctions with Resale," Econometrica, Econometric Society, vol. 74(3), pages 753-769, 05.
    2. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
    3. Hafalir, Isa & Krishna, Vijay, 2009. "Revenue and efficiency effects of resale in first-price auctions," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 589-602, September.
    4. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
    5. repec:wop:humbsf:2000-72 is not listed on IDEAS
    6. Isa Hafalir & Vijay Krishna, 2008. "Asymmetric Auctions with Resale," American Economic Review, American Economic Association, vol. 98(1), pages 87-112, March.
    7. Larry M. Ausubel & Raymond J. Deneckere, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Levine's Working Paper Archive 201, David K. Levine.
    8. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1, Spring.
    9. Gupta, Madhurima & Lebrun, Bernard, 1999. "First price auctions with resale," Economics Letters, Elsevier, vol. 64(2), pages 181-185, August.
    10. Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
    11. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
    12. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    13. Lawrence M. Ausubel & Peter Cramton & Raymond J. Deneckere, 2002. "Bargaining with Incomplete Information," Papers of Peter Cramton 02barg, University of Maryland, Department of Economics - Peter Cramton, revised 12 Mar 2001.
    14. Sobel, Joel & Takahashi, Ichiro, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 411-26, July.
    15. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
      [Auctions: Theory and Practice]
      ," Introductory Chapters, Princeton University Press.
    16. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
    17. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
    18. Ausubel, Lawrence M & Deneckere, Raymond J, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Econometrica, Econometric Society, vol. 57(3), pages 511-31, 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.
    20. Harrison Cheng & Guofu Tan, 2010. "Asymmetric common-value auctions with applications to private-value auctions with resale," Economic Theory, Springer, vol. 45(1), pages 253-290, October.
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    Cited by:
    1. Che, XiaoGang & Lee, Peter & Yang, Yibai, 2013. "The impact of resale on entry in second price auctions," Mathematical Social Sciences, Elsevier, vol. 66(2), pages 163-168.
    2. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.

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