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Bidding to lose? Auctions with resale
Author(s) -
Pagnozzi Marco
Publication year - 2007
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.0741-6261.2007.00127.x
Subject(s) - microeconomics , common value auction , generalized second price auction , bidding , vickrey auction , revenue , english auction , economics , business , valuation (finance) , auction theory , multiunit auction , finance
A losing bidder can still purchase the prize from the winner after the auction. We show why a strong bidder may prefer to drop out of the auction before the price has reached her valuation and acquire the prize in the aftermarket: a strong bidder may be in a better bargaining position in the aftermarket if her rival won at a relatively low price. So it can be common knowledge that, in equilibrium, a weak bidder will win the auction and, even without uncertainty about relative valuations, resale will take place. The possibility of reselling to a strong bidder attracts weak bidders to participate in the auction and raises the seller's revenue.