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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.

Suggested Citation

  • Marco Pagnozzi, 2007. "Should Speculators Be Welcomed in Auctions?," CSEF Working Papers 176, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:176
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    Cited by:

    1. 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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    More about this item

    Keywords

    multi-object auctions; speculation; resale; demand reduction;
    All these keywords.

    JEL classification:

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

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