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Auctions with Resale When Private Values Are Uncertain: Theory and Empirical Evidence

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

Abstract

Auction theory is 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 developing theory to explore auctions with resale when private values are uncertain. We put our theory to the test by examining both field data and experimental data from the lab. Our field data are from a unique data set that includes nearly 3,000 auctions (over 10,000 individual bids) for cutting rights of standing timber in British Columbia from 1996-2000. 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 our theoretical predictions. 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 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. More generally, the paper highlights the inferential power of combining naturally occurring data with laboratory data.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10639.

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Date of creation: Jul 2004
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Handle: RePEc:nbr:nberwo:10639

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Cited by:
  1. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2009. "Measuring Strategic Uncertainty in Coordination Games," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 181-221.
  2. Georganas, Sotiris, 2011. "English auctions with resale: An experimental study," Games and Economic Behavior, Elsevier, Elsevier, vol. 73(1), pages 147-166, September.
  3. Saral, Krista Jabs, 2012. "Speculation and demand reduction in English clock auctions with resale," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 84(1), pages 416-431.
  4. Marco Pagnozzi & Krista Jabs Saral, 2013. "Multi-Object Auctions with Resale: An Experimental Analysis," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 328, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  5. David Bruner & Michael McKee & Rudy Santore, 2008. "Hand in the Cookie Jar: An Experimental Investigation of Equity-based Compensation and Managerial Fraud," Working Papers, Department of Economics, Appalachian State University 08-05, Department of Economics, Appalachian State University.
  6. Saral, Krista Jabs, 2009. "An Analysis of Market-Based and Statutory Limited Liability in Second Price Auctions," MPRA Paper 25143, University Library of Munich, Germany.
  7. Andreas Lange & John A. List & Michael K. Price, 2010. "Auctions with Resale When Private Values Are Uncertain: Evidence from the Lab and Field," NBER Working Papers 16360, National Bureau of Economic Research, Inc.

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