After an auction, a losing bidder can purchase the prize from the winner. We show why a strong bidder may prefer to drop out of the auction before the price has reached her valuation, and acquire the prize in the aftermarket: a strong bidder may be in a better bargaining position in the aftermarket if her rival won at a relatively low price. So it can be common knowledge that, in equilibrium, a weak bidder will win the auction and, even without uncertainty about relative valuations, resale will take place. (Furthermore, the result is robust to the addition of bidding costs.) And the possibility of reselling to a strong bidder attracts weak bidders to participate in the auction, and raises the seller's revenue. We explore how the seller can manipulate the conditions under which wealth-constrained bidders can finance their bids in order to induce a resale-equilibrium which raises the auction price.
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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number
116.
Length: Date of creation: 01 Mar 2004 Date of revision: Publication status: Published in RAND Journal of Economics, 2007, 38(4), 1090-1112 Handle: RePEc:sef:csefwp:116
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.:
Charles Zhoucheng Zheng, 2002.
"Optimal Auction with Resale,"
Econometrica,
Econometric Society, vol. 70(6), pages 2197-2224, November.
[Downloadable!] (restricted)
Giacomo Calzolari & Alessandro Pavan, 2003.
"Monopoly with Resale,"
Working Papers
2003.20, Fondazione Eni Enrico Mattei.
[Downloadable!]
Other versions:
Giacomo Calzolari & Alessandro Pavan, 2004.
"Monopoly with Resale,"
Discussion Papers
1393, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Giacomo Calzolari & Alessandro Pavan, 2005.
"Monopoly with Resale,"
Discussion Papers
1405, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
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