We consider 2-bidder first-price auctions where one bidder's value is commonly known. Such auctions induce an ineffcient allocation. We show that a resale opportunity, where the auction winner can make a take-it-or-leave-it offer to the loser, increases (reduces) the ineffciency of the market when the buyer with the commonly known value is weak (strong). Resale always reduces all bidders' payoffs and increases the initial seller's revenue.
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number
bgse25_2004.
Length: 27 Date of creation: Sep 2004 Date of revision: Handle: RePEc:bon:bonedp:bgse25_2004
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Rod Garratt & Thomas Tröger, 2005.
"Speculation in Standard Auctions with Resale,"
Discussion Papers
42, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
[Downloadable!]
Roger B. Myerson, 1978.
"Optimal Auction Design,"
Discussion Papers
362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]