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The Impact of Resale on Entry in Second Price Auctions


  • Che, XiaoGang

    () (University of Alberta, Department of Economics)

  • Lee, Peter

    () (University of Sydney)

  • Yang, Yibai

    () (University of Nottingham Ningbo China)


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.

Suggested Citation

  • Che, XiaoGang & Lee, Peter & Yang, Yibai, 2013. "The Impact of Resale on Entry in Second Price Auctions," Working Papers 2013-6, University of Alberta, Department of Economics.
  • Handle: RePEc:ris:albaec:2013_006

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    References listed on IDEAS

    1. Cheng, Harrison, 2011. "Auctions with resale and bargaining power," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 300-308.
    2. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-1575, September.
    3. 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.
    4. 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.
    5. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
    6. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
    7. Isa Hafalir & Vijay Krishna, 2008. "Asymmetric Auctions with Resale," American Economic Review, American Economic Association, vol. 98(1), pages 87-112, March.
    8. Rod Garratt & Thomas Tröger, 2006. "Speculation in Standard Auctions with Resale," Econometrica, Econometric Society, vol. 74(3), pages 753-769, May.
    9. Marco Pagnozzi, 2007. "Bidding to lose? Auctions with resale," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1090-1112, December.
    10. 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.
    11. Lebrun, Bernard, 2012. "Optimality and the English and second-price auctions with resale," Games and Economic Behavior, Elsevier, vol. 75(2), pages 731-751.
    12. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.
    13. Tian, Guoqiang & Xiao, Mingjun, 2009. "Vickrey Auctions with Sequential and Costly Participation," MPRA Paper 41203, University Library of Munich, Germany.
    14. Gupta, Madhurima & Lebrun, Bernard, 1999. "First price auctions with resale," Economics Letters, Elsevier, vol. 64(2), pages 181-185, August.
    15. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-75, 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.
    2. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications, Elsevier.

    More about this item


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

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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