Resale in second‐price auctions with private entry

Abstract

This paper investigates the effects of resale on bidders' entry decisions, social welfare, and seller's expected revenue in a second‐price auction with two‐dimensional private information on values and participation costs. We establish the existence of symmetric entry equilibrium and identify sufficient conditions under which the equilibrium is unique. We show that when resale is allowed, the low‐cost bidders become more aggressive on entry, while the high‐cost bidders are less likely to enter. Furthermore, our analysis also suggests resale allowance can increase the social welfare under a sufficient condition, which depends on the magnitude of bargaining power, and its effect on expected revenue is ambiguous.