Demand Reduction in Multi‐Object Auctions with Resale: An Experimental Analysis

Abstract

We analyse the effects of different resale mechanisms on bidders' strategies in multi-object uniformprice auctions with asymmetric bidders. Our experiment consists of four treatments: one without resale and three resale treatments that vary the information available and the bargaining mechanism in the resale market. Resale markets induce demand reduction by high-value bidders and speculation by low-value bidders, thus affecting the allocation of the objects on sale. The magnitude of these effects, however, depends on the structure of the resale market. Features of the resale market that tend to increase its efficiency result in lower auction efficiency and seller's revenue.

Efficiency in auctions with (failed) resale

“…Consistent with the results of Pagnozzi and Saral (2015), we show that the presence of a certain resale 3 With asymmetric bidders resale may emerge because of bidders'strategic behavior in the auction -demand reduction and speculation (Garratt and Tröger, 2006;Pagnozzi, 2010). 4 For example, in an auction for geographically di¤erentiated mobile phone licenses, a strong bidder can be interpreted as an incumbent operator who aims at acquiring a nationwide license, while a weak bidder can be interpreted as a new and smaller entrant, possibly interested only in a local license, or even as a pure speculator.…”

“…Our theoretical analysis builds on the model in Pagnozzi and Saral (2015), who consider an auction that is always followed by a resale market.…”

“…Following Pagnozzi and Saral (2015), we consider resale through a general bargaining procedure between bidders. We believe that this is a more realistic representation of many real-life situations in which bidders attempt to trade after an auction but do not follow a formal trading mechanism (e.g., because no bidder has the bargaining power to impose his preferred trading mechanism).…”

“…Recent theoretical and experimental results, however, suggest that the possibility of resale after multi-object auctions also a¤ects bidders'strategies in ways that tend to reduce auction e¢ ciency (Pagnozzi and Saral, 2015). This is because in multiobject auctions bidders have an incentive to reduce demand -i.e., bid less than their valuations for marginal units, in order to reduce the auction price for inframarginal units (Wilson, 1979; Ausubel and Cramton, 1998) -and the presence of a resale market exacerbates this incentive since it provides bidders with a chance to purchase a unit that they do not acquire in the auction.…”

“…6 Experiments on single-object auctions with resale include Georganas auction, or through a take-it-or-leave-it o¤er by the auction winner. Filiz-Ozbay et al (2012) and Pagnozzi and Saral (2015) analyze multi-object auctions with resale, when a resale market always exists, and consider the e¤ects of di¤erent structures of the resale market on di¤erent auction formats. We extend this literature by analyzing the e¤ects of a possible but uncertain resale market on the auction outcome.…”