Auctions with options to re-auction

We examine a dynamic model of English auctions with independent private values. There is a single object for sale and it is not possible for the seller, who has a value of zero for the object, to commit not to sell in the future if a sale is not accomplished today. The seller may be able to commit to a reserve price, or make a cheap-talk announcement of a reserve price and secretly bid for the object herself in order to re-auction it in a later round with a new set of bidders. Bidders are “short-lived”in the sense that at the end of each round all existing bidders vanish and new bidders start arriving. This framework allows us to obtain existing results for one shot-auctions as special cases. This framework also allows us to capture some of the features of thick internet auctions and to obtain some new insights on the role of commitment, on optimal length and on socially optimal reserve prices that are not apparent from a one-shot auction perspective. JEL: D44, D82. Key words: shill bidding, re-auction option, reserve price, internet auctions. Simon Grant Department of Economics Rice University and School of Economics Australian National University Atsushi Kajii Institute of Social and Economic Research Osaka University Flavio Menezes School of Economics Australian National University and EPGE/FGV Matthew J. Ryan Department of Economics University of Auckland While accepting responsibility for all remaining shortcomings of the paper, we would like to thank Paulo Monteiro and seminar participants at the Australian National University, University of New South Wales, University of Sydney and ESAM 2002 for their comments. Particular thanks are owed to Guillaume Rocheteau, who carefully read earlier drafts and o¤ered many valuable suggestions. The …nancial support of ARC (Grant no. A000000055) is gratefully acknowledged. yCorresponding Author: Flavio Menezes. Address: Australian National University, School of Economics (Building no. 26), Canberra, ACT, 0200, Australia. E-mail: [email protected]. Phone: 61-2-61252651. Fax: 61-2-61255124.