English auctions with resale: An experimental study

Abstract

I design and test a simple English auction and two English auctions with resale, but with di¤erent informational backgrounds. All three treatments theoretically have the same equilibrium. I …nd, however, that the possibility of resale alters behavior signi…cantly. In the two treatments with resale, subjects deviated from both the Nash prediction and the common results about bidding behavior in English auctions. Subjects tend to overbid, when they are certain they can reap the whole surplus in the resale market. I employ di¤erent models like QRE and levels of reasoning and conclude that overbidding can be explained as a rational response to the noisy environment in markets with human participants, that is, as rational decision making when anticipating others to make errors. When the outcome of the resale market is not certain, there is signi…cant signaling behavior and auction prices tend to be lower than the the Nash prediction.

On the persistence of strategic sophistication

“…A functional MRI study even suggests differences in brain activity between subjects who exhibit varying degrees of "strategic sophistication" [9]. Finally, a few recent papers apply the Level-k concept to study departures from Nash equilibrium play in auctions, finding that the Level-k approach often, though not always, yields a significantly better fit than the Nash equilibrium [26,35]. However, Ivanov et al [44] show that models with misguided beliefs (such as Level-k) cannot explain the winner's curse in common value auctions, because subjects who play against their own past actions still exhibit substantial overbidding.…”

Efficiency in auctions with (failed) resale

“…Second, bidder S can reduce demand and bid zero for the second unit in the auction (letting W win the other unit), 10 thus winning one unit at price 0 in the auction and then possibly buying the second unit from bidder W in resale market. In this case, S obtains an expected total pro…t equal to …”

Multi-object auctions with resale: Theory and experiment

“…The literature on auctions with resale provides six main reasons for resale: (i) New information regarding the values of objects arrives after the auctions (see Haile (1999Haile ( , 2000Haile ( , 2001Haile ( , 2003 and Gupta and Lebrun (1999)), (ii) new buyers arrive after the auction is over (Haile (1999)), (iii) asymmetry in the auction may lead to inefficient allocation (Zheng (2002); Hafalir and Krishna (2008)), (iv) presence of speculators in the auction (Garratt and Tröger (2006);Pagnozzi (2007Pagnozzi ( , 2009Pagnozzi ( , 2010), (v) coordination on collusive outcome (Garratt, Tröger, and Zheng (2009)), and (vi) misperception of resale markets (Georganas (2011)). Our setup is closest to the third type because a multi-object auction setting with complementarities provides a natural asymmetry in terms of demand of bidders and therefore may lead to inefficient allocation under different formats.…”

“…Lange, List and Price (2011) experimentally study symmetric first-price auctions where bidders' valuations are initially noisy and there is room for resale. Georganas andKagel (2011) test Hafalir andKrishna (2008). Georganas (2011) experimentally studies symmetric English auctions with resale and shows deviations from equilibrium that he interprets as misperception of resale.…”

“…Georganas andKagel (2011) test Hafalir andKrishna (2008). Georganas (2011) experimentally studies symmetric English auctions with resale and shows deviations from equilibrium that he interprets as misperception of resale. The only other paper, to the best of our knowledge, studying a multi-object setting with resale possibility is Pagnozzi and Jabs-Saral (2013).…”