City Research Online

Abstract

We run experiments on second price auctions with resale opportunities, where a speculator (zero-value bidder) is commonly known to exist. Garratt and Tr¨oger (2006) show that there is a continuum of speculative equilibria, apart from the standard bid-your-value one, in which the speculator gets the good in the first stage auction with a positive probability. She pays a price of zero and resells it to the private-value bidder in the second stage. In the most extreme equilibrium, the private-value bidder always bids zero and the speculator always obtains the good. We find that bidders often follow a speculative equilibrium, however, when they do, they tend to split the rents more equally than predicted by theory. When the speculative equilibrium is not observed, the presence of the speculator leads to more aggressive bidding by private-value bidders that results in increased revenue for the seller. An increase in the number of bidders makes speculation harder, but does not eliminate it.

Publication Type:	Article
Additional Information:	© 2021. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords:	Auctions, resale, experiment, speculators. JEL classification: D44, C90
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
Departments:	School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

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