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Abstract

I design and test a simple English auction and two English auctions with resale, but with different informational backgrounds. All three treatments theoretically have the same equilibrium. I find, however, that the possibility of resale alters behavior significantly. 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 different 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 significant signaling behavior and auction prices tend to be lower than the Nash prediction.

Publication Type:	Article
Additional Information:	NOTICE: this is the author’s version of a work that was accepted for publication in Games and Economic Behavior. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Games and Economic Behavior, Volume 73, Issue 1, September 2011, Pages 147–166, http://dx.doi.org/10.1016/j.geb.2011.01.005
Publisher Keywords:	Auctions with resale, Experiment, Bounded rationality, QRE, Level k
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
Departments:	School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

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