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Auctions with speculators: An experimental study

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  • Garratt, Rodney
  • Georganas, Sotiris

Abstract

We run experiments on second-price auctions with resale opportunities, where a zero-value bidder, called a speculator, is commonly known to exist. Garratt and Tröger (2006a) 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 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 obtains the good. We find that bidders frequently play strategies that are consistent with a speculative equilibrium. 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 private-value bidders makes speculation harder, but does not eliminate it.

Suggested Citation

  • Garratt, Rodney & Georganas, Sotiris, 2021. "Auctions with speculators: An experimental study," Games and Economic Behavior, Elsevier, vol. 128(C), pages 256-270.
    • Handle: RePEc:eee:gamebe:v:128:y:2021:i:c:p:256-270
    DOI: 10.1016/j.geb.2021.03.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Auctions; Resale; Experiment; Speculators;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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