Auctions with Resale When Private Values are Uncertain: Evidence from the Lab and Field

39 Pages Posted: 15 Sep 2010 Last revised: 19 Sep 2010

See all articles by Andreas Lange

Andreas Lange

University of Hamburg

John A. List

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Michael K. Price

University of Tennessee, Knoxville

Date Written: September 2010

Abstract

Auction theory represents one of the richest areas of research in economics over the past three decades. Yet, whether, and to what extent, the introduction of secondary resale markets influences bidding behavior in sealed bid first-price auctions remains under researched. This study begins by examining field data from a unique data set that includes nearly 3,000 auctions (over 10,000 individual bids) for cutting rights of standing timber in British Columbia from 1996-2000. In comparing bidding patterns across agents who are likely to have resale opportunities with those who likely do not, we find evidence that is consistent with theory. Critical evaluation of the reduced-form bidding model, however, reveals that sharp tests of the theoretical predictions are not possible because several other differences may exist across these bidder types. We therefore use a laboratory experiment to examine if the resale opportunity by itself can have the predicted theoretical effect. We find that while it does have the predicted effect, a theoretical model based on risk-averse bidders explains the overall data patterns more accurately than a model based on risk-neutral bidders. Beyond testing theory, the paper highlights the inferential power of combining naturally occurring data with laboratory data.

Suggested Citation

Lange, Andreas and List, John A. and Price, Michael K., Auctions with Resale When Private Values are Uncertain: Evidence from the Lab and Field (September 2010). NBER Working Paper No. w16360. Available at SSRN: https://ssrn.com/abstract=1677247

Andreas Lange (Contact Author)

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

John A. List

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Michael K. Price

University of Tennessee, Knoxville ( email )

The Boyd Center for Business and Economic Research
Knoxville, TN 37996
United States

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