1. Asymmetric auctions with resale: an experimental study
Sotiris Georganas, Ohio State and U of London, Royal Holloway
John Kagel, Ohio State
2009 Econometric Society, NASM

2. Motivation Auctions are often followed by resale
Resale can arise due to many reasons
When bidders are symmetric
New bidders arriving in resale stage (Haile 1999)
Outcome of initial auction is inefficient because of
Noisy signals (Haile 2003)
Noisy behavior (Georganas 2008)
When bidders are asymmetric
Speculation equilibria
Zero value speculators in second price auctions (Garratt, Troeger 2006)
Bidders with positive values also speculate (Hafalir and Krishna, 2008)

3. Digression: symmetric auctions with resale, Georganas (2008)
Simple english auction with full information in second stage
Bid your value equilibrium in first stage
But equilibrium not robust
Human players make mistakes and anticipate others to make mistakes
Expecting a small amount of noise added to the equilibrium bids leads away from bif your value to a very different best response
Why?
BR naive assumes normal error with SD=15
Next page bigger graph of the problem (took image away)

4. Digression: symmetric auctions with resale, expected payoffs
Say what is the error distribution, robustness of results
Explain that this feature can be incorporated in some formal models of bounded rationality

5. Bounded rationality

6. Asymmetric auction model
2 risk neutral bidders, s and w, compete in a first price auction for one unit of an indivisible good
Strong type has use value vi ~U[0, as]
Weak type has use value vi ~U[0, aw], with 0< aw< as
Resale stage where winner makes a take it or leave it offer
Equilibrium (Hafalir and Krishna 2008):
Next slide showing the bids

7. Equilibrium Bids aw = 10, as = 100 The effect of resale is very strong
Maximum bid with resale: ca. 27
Without: ca. 9 (intuition? Weak bids never more than value, strong never more than highest weak)
Symmetrization!
Brief explanation: if symmetric you cannot try to resell (if you win you have a higher value than other!)
Without resale, low never bids more than value, high does not want to bid more than highest low

8. Equilibrium Bids 2 aw = 34, as = 100
The effect of resale is not as strong
Maximum bid with resale: ca. 34
Without: ca. 25
Bid your value for weak type
Symmetrization still holds 8

9. Symmetrization

10. Experimental Design
Experiments at Ohio State, computerized (zTree), about 16 subjects at each session
3 treatments: aw =10 (3 sessions), aw =34 (3 sessions) and aw =34 with dual markets (2 session)
2 trial periods, 40 paying periods, random matching
Players alternate roles after 20 periods
1.5 hours
Mean payoffs about 36 dollars
Exchange rate 1/17 in W10 and 1/15 in W34
Two bankruptcies (got 7 dollars and went home)

11. Results: Prices over time
There is learning over time
Shock in period 20

12. Results contd.
Use data from periods and where learning has stabilized
Even in these later periods, prices are higher than predicted
Treatment
Mean actual price
Mean predicted price 10
19.98
18.75 34
25.98
21.37
Note that if there was no resale revenue in 10 would be less than 10
Let us see why by examining individual bids

13. Bids, treatment 10

14. Bids, treatment 10 Quartiles
Whisker extends to smallest outlier inside 1.5 times IQR
Solid line is bid your value, dashed equilibrium

15. Reasons for deviation in treatment 10
High types make high profits
Low types have very low profits in equilibrium and even lower in practice
Why?
Did they win often enough?
Did they set good reserve prices conditional on winning? 15

16. Frequency of winning Win frequency 10 34 Actual 0.2564 0.3701
Won less often because of high types overbidding
Does not go away with time
Win frequency 10 34
Actual
0.2564
0.3701
Predicted given values (in theory= 0.5)
0.4987
0.4643

17. Reserve prices
strong types bidding above the RNNE (even by a modest amount) substantially reduces weak players opportunities to earn positive
profits. This, in conjunction with the low predicted profits to begin with, pushes weak
players’ profits over the edge to earning small negative profits.
Optimal reserve depends on the winning price and opponent’s strategy
Reserve prices were set quite well
Should not be the reason for underbidding

18. What can explain the deviation?
Strong types overbid in first stage
This makes it harder for weak types to win and lowers value of winning
Strong opponents I win against have lower average values -> resale option less attractive
Lower profits than in equilibrium
Risk aversion?
Problems can be avoided if predicted strategy for weak less risky -> treatment W34
Sotiris Georganas - Auctions with Resale

19. Bids, treatment 34

20. Bids, treatment 34

21. Dual Market
aw =34, subjects submit bids for resale & no resale case

22. Symmetrization?
Econometrician could look at third panel and think bids come from symmetric bidders!
Significant change from no resale to resale; Kolm.-Smirnov p<0.01

23. Comparison with previous results
Gueth et al 2005, asymmetric auctions without resale
Bids higher than theory, less than truthful
Georganas 2004, symmetric English auctions
Overbidding
Resale sometimes raises revenues even if theory predicts it shouldn’t
Lange, List, Price symmetric first price auctions
Also find some overbidding and attribute it to risk aversion

24. Conclusions Resale has an effect in asymmetric auctions
Raises revenues
Symmetrizes bids to some degree
Deviation from theory depends on asymmetries
Both types
Underbidding for big asymmetries
Equilibrium bidding in some intermediate range
Overbidding for low asymmetries
Risk aversion about the uncertain profits in second stage might be an explanation
We know in symmetric first price sealed bids they overbid…

25. Dual Market: no resale

26. Summary of single market treatments

27. Summary 34 dual
Sotiris Georganas - Auctions with Resale

28. Over/under-bidding in 10

29. Over/under-bidding in 34

30. Treatment 10, bids
Sotiris Georganas - Auctions with Resale