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Sequential auctions and resale

Ridinger, Wolfgang (2020) Sequential auctions and resale. PhD thesis, The London School of Economics and Political Science (LSE).

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Abstract

In this thesis I study a market comprised of a sequence of auctions where buyers can choose to later resell any object they now buy. I develop a structural model of such a market and show how the possibility to resell shapes equilibrium strategies. I then estimate the model on data from classic car auctions. The model admits aggregate shocks to buyer and seller wealth and that way matches the positive empirical correlation between prices and the state of the economy. Using a separate two-period model I show analytically that the resale option may increase average prices as compared to an otherwise identical market without resale. The same two-period model shows that with aggregate shocks resale may amplify price volatility. I then evaluate the quantitative importance of these effects in a number of counterfactual experiments on the estimated model. Resale raises prices moderately but does not lead to meaningfully more volatility. Allowing (counterfactually) for instantaneous resale increases average prices and their volatility substantially. A second set of counterfactuals reveals that centralizing trade lowers prices and increases the volume of trade, thereby increasing the efficiency of the market. Price volatility remains unchanged in this scenario, even with frequent resale opportunities. An assumption in my model and several others in the literature is that bidders take a stationary distribution of rival bids as given and don't learn about that distribution from one auction to the next. This is different from the canonical model of sequential auctions in Weber (1983), where learning is present. I therefore compare the Weber model to a model where bidders face a stationary distribution of rival bids in each period. I show how equilibrium strategies differ in the two games and show that despite the differences, the two games yield the same expected prices and payoffs.

Item Type: Thesis (PhD)
Additional Information: © 2020 Wolfgang Ridinger
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
Sets: Departments > Economics
Supervisor: Pesendorfer, Martin
URI: http://etheses.lse.ac.uk/id/eprint/4154

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