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The Impact of Resale on Entry in Second Price Auctions

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Author Info

  • Che, XiaoGang

    ()
    (University of Alberta, Department of Economics)

  • Lee, Peter

    ()
    (University of Sydney)

  • Yang, Yibai

    ()
    (University of Nottingham Ningbo China)

Abstract

This paper investigates the effect of resale allowance on entry strategies in a second price auction with two bidders whose entries are sequential and costly. We first characterize the perfect Bayesian equilibrium in cutoff strategies. We then show that there exists a unique threshold such that if the reseller's bargaining power is greater (less) than the threshold, resale allowance causes the leading bidder (the following bidder) to have a higher (lower) incentive on entry; i.e., the cutoff of entry becomes lower (higher). We also discuss asymmetric bidders and the original seller's expected revenue.

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Bibliographic Info

Paper provided by University of Alberta, Department of Economics in its series Working Papers with number 2013-6.

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Length: 19 pages
Date of creation: 01 May 2013
Date of revision:
Handle: RePEc:ris:albaec:2013_006

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Keywords: second price auctions; costly participation; sequential entry; resale;

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References

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  1. Zheng, Charles Zhoucheng, 2002. "Optimal Auction with Resale," Staff General Research Papers 12664, Iowa State University, Department of Economics.
  2. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  3. Rod Garrat & Thomas Tröger, 2005. "Speculation in Standard Auctions with Resale," Bonn Econ Discussion Papers bgse10_2005, University of Bonn, Germany.
  4. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  5. Haile, Philip A., 2000. "Partial Pooling at the Reserve Price in Auctions with Resale Opportunities," Games and Economic Behavior, Elsevier, vol. 33(2), pages 231-248, November.
  6. repec:att:wimass:9702 is not listed on IDEAS
  7. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.
  8. Tan, Guofu & Yilankaya, Okan, 2006. "Equilibria in second price auctions with participation costs," Journal of Economic Theory, Elsevier, vol. 130(1), pages 205-219, September.
  9. Lebrun, Bernard, 2012. "Optimality and the English and second-price auctions with resale," Games and Economic Behavior, Elsevier, vol. 75(2), pages 731-751.
  10. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Papers 2009-W05, Economics Group, Nuffield College, University of Oxford.
  11. Philip A. Haile, 2001. "Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales," American Economic Review, American Economic Association, vol. 91(3), pages 399-427, June.
  12. Isa Hafalir & Vijay Krishna, 2008. "Asymmetric Auctions with Resale," American Economic Review, American Economic Association, vol. 98(1), pages 87-112, March.
  13. Marco Pagnozzi, 2004. "Bidding to Lose? Auctions with Resale," CSEF Working Papers 116, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Nov 2006.
  14. Cheng, Harrison, 2011. "Auctions with resale and bargaining power," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 300-308.
  15. Tian, Guoqiang & Xiao, Mingjun, 2009. "Vickrey Auctions with Sequential and Costly Participation," MPRA Paper 41203, University Library of Munich, Germany.
  16. Rod Garratt & Thomas Troger, 2004. "Speculation in Standard Auctions with Resale," Microeconomics 0405005, EconWPA.
  17. Gupta, Madhurima & Lebrun, Bernard, 1999. "First price auctions with resale," Economics Letters, Elsevier, vol. 64(2), pages 181-185, August.
  18. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
  19. Tymofiy Mylovanov & Thomas Tröger, 2009. "Optimal auction with resale—a characterization of the conditions," Economic Theory, Springer, vol. 40(3), pages 509-528, September.
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Cited by:
  1. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.

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