Speculation in Standard Auctions with Resale

In standard auctions resale creates a role for a speculator-a bidder who is commonly known to have no use value for the good on sale. We study this issue in environments with symmetric independent private-value bidders. For second-price and English auctions the efficient value-bidding equilibrium co...

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Bibliographic Details
Published in:Econometrica 2006-05, Vol.74 (3), p.753-769
Main Authors: Garratt, Rod, Tröger, Thomas
Format: Article
Language:English
Subjects:
Allocative efficiency
Applications
Auction markets
Auctions
Bidding
Bids
Discounts
Economic efficiency
Economic equilibrium
Economic models
Economic theory
efficiency
Exact sciences and technology
Financial speculation
Insurance, economics, finance
Market theory
Mathematical methods
Mathematics
Notes and Comments
Probability and statistics
Probability theory and stochastic processes
Profits
Resale
Revenue
Sciences and techniques of general use
Special processes (renewal theory, markov renewal processes, semi-markov processes, statistical mechanics type models, applications)
Speculation
Speculators
Standard auctions
Statistics
Studies
Use value
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Summary:In standard auctions resale creates a role for a speculator-a bidder who is commonly known to have no use value for the good on sale. We study this issue in environments with symmetric independent private-value bidders. For second-price and English auctions the efficient value-bidding equilibrium coexists with a continuum of inefficient equilibria in which the speculator wins the auction and makes positive profits. First-price and Dutch auctions have an essentially unique equilibrium, and whether or not the speculator wins the auction and distorts the final allocation depends on the number of bidders, the value distribution, and the discount factor. Speculators do not make profits in first-price or Dutch auctions.
ISSN:0012-9682
1468-0262
DOI:10.1111/j.1468-0262.2006.00681.x