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Should Speculators Be Welcomed in Auctions?

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Abstract

The possibility of resale after an auction attracts speculators (i.e., bidders who have no use value for the objects on sale). In a multi-object auction, a high-value bidder may strictly prefer to let a speculator win some of the objects and then buy in the resale market, in order to keep the auction price low for the objects she wins in the auction. Therefore, although speculators increase competition in the auction, they also affect high-value bidders.incentives to .reduce demand..We show that the net e¤ect on the seller.s revenue of allowing resale to attract speculators depends on the heterogeneity of bidders.valuations. But the presence of speculators may increase the seller.s revenue only if speculators are eventually outbid. We also analyze the effect on the seller.s revenue of allowing resale in the absence of speculators, and we discuss the strategies that the seller can adopt to increase his revenue.

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 176.

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Date of creation: 01 Mar 2007
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Handle: RePEc:sef:csefwp:176

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Keywords: multi-object auctions; speculation; resale; demand reduction;

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References

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  2. Zheng, Charles Zhoucheng, 2002. "Optimal Auction with Resale," Staff General Research Papers 12664, Iowa State University, Department of Economics.
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Cited by:
  1. Thomas Tröger & Rodney Garratt & Charles Zheng, 2008. "Collusion via Resale," Bonn Econ Discussion Papers bgse20_2008, University of Bonn, Germany.
  2. Pagnozzi, Marco, 2009. "Resale and bundling in auctions," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 667-678, November.

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