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The Impact of Resale on Entry in Second Price Auctions

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  • Che, XiaoGang
  • Lee, Peter
  • Yang, Yibai

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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File URL: http://hdl.handle.net/2123/9029
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Bibliographic Info

Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2013-07.

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Date of creation: Apr 2013
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Handle: RePEc:syd:wpaper:2123/9029

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Postal: Sydney, NSW 2006
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Web page: http://sydney.edu.au/arts/economics
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Keywords: resale; sequential entry; costly participation; Second price auctions;

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References

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  1. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, Elsevier, vol. 17(1-2), pages 53-57.
  2. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Papers 2009-W05, Economics Group, Nuffield College, University of Oxford.
  3. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, Elsevier, vol. 108(1), pages 72-110, January.
  4. Marco Pagnozzi, 2007. "Bidding to lose? Auctions with resale," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1090-1112, December.
  5. Tian, Guoqiang & Xiao, Mingjun, 2009. "Vickrey Auctions with Sequential and Costly Participation," MPRA Paper 41203, University Library of Munich, Germany.
  6. Rod Garratt & Thomas Troger, 2004. "Speculation in Standard Auctions with Resale," Microeconomics, EconWPA 0405005, EconWPA.
  7. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 585-99, June.
  8. Guofu Tan & Okan Yilankaya, 2005. "Equilibria in Second Price Auctions with Participation Costs," IEPR Working Papers, Institute of Economic Policy Research (IEPR) 05.7, Institute of Economic Policy Research (IEPR).
  9. repec:att:wimass:9702 is not listed on IDEAS
  10. Gupta, Madhurima & Lebrun, Bernard, 1999. "First price auctions with resale," Economics Letters, Elsevier, Elsevier, vol. 64(2), pages 181-185, August.
  11. Zheng, Charles Zhoucheng, 2002. "Optimal Auction with Resale," Staff General Research Papers 12664, Iowa State University, Department of Economics.
  12. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, Elsevier, vol. 23(4), pages 343-347.
  13. Cheng, Harrison, 2011. "Auctions with resale and bargaining power," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 300-308.
  14. Isa Hafalir & Vijay Krishna, 2008. "Asymmetric Auctions with Resale," American Economic Review, American Economic Association, American Economic Association, vol. 98(1), pages 87-112, March.
  15. Lebrun, Bernard, 2012. "Optimality and the English and second-price auctions with resale," Games and Economic Behavior, Elsevier, Elsevier, vol. 75(2), pages 731-751.
  16. Tymofiy Mylovanov & Thomas Tröger, 2009. "Optimal auction with resale—a characterization of the conditions," Economic Theory, Springer, Springer, vol. 40(3), pages 509-528, September.
  17. Rod Garrat & Thomas Tröger, 2005. "Speculation in Standard Auctions with Resale," Bonn Econ Discussion Papers, University of Bonn, Germany bgse10_2005, University of Bonn, Germany.
  18. Philip A. Haile, 2001. "Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 399-427, June.
  19. Haile, Philip A., 2000. "Partial Pooling at the Reserve Price in Auctions with Resale Opportunities," Games and Economic Behavior, Elsevier, Elsevier, vol. 33(2), pages 231-248, November.
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Cited by:
  1. Kaplan, Todd R & Zamir, Shmuel, 2014. "Advances in Auctions," MPRA Paper 54656, University Library of Munich, Germany.

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