Entry by Successful Speculators in Auctions with Resale

Abstract

We experimentally analyze the role of speculators, who have no use value for the objects on sale, in auctions. The environment is a uniform-price sealed-bid auction for 2 identical objects, followed by a free-form bargaining resale market. There is always one positive-value bidder, and either one to two speculators who may choose whether to enter the auction. We show that the bidder accommodates speculators by reducing demand in the auction and subsequently purchasing in the resale market, which encourages entry by speculators. The presence of multiple speculators induces each speculator to enter less often, but increases competition in the auction and the auction price. Speculators earn positive pro…ts on average, except when multiple speculators enter the auction.JEL Classi…cation: D44, C90.

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

“… Pagnozzi and Saral () analyse the role of speculators and the effect of resale on players’ entry decisions. …”

A review of multiunit auctions with homogeneous goods

“…Furthermore, Pagnozzi and Saral (2017) suggest that in the case of incomplete information, the magnitude of demand reduction by high‐value bidders is less compared to those cases with complete information. Pagnozzi and Saral (2019) study a uniform‐price auction where speculators can enter without a use‐value for the objects. In a situation with two units and one speculator, they show that the bidder welcomes the speculator by bidding less in the auction.…”

“…This allows the bidder to reduce the auction price and pay less for the unit won and later purchasing the other unit in the resale market. Furthermore, Pagnozzi and Saral (2019) show when multiple speculators exist, each speculator enters the auction less frequently and both competition and the auction price increase. Elskamp and Kirkegaard (2019) study the scaling effects on bidding behavior in a uniform price auction using lab experiments.…”