Abstract
This dissertation utilizes experiments to test theoretical predictions regarding the impact of resale on behavior in an auction. In the first essay I examine how the existence of an inter-bidder resale opportunity impacts bidder behavior in an English clock auction, and to what extent altering the bargaining power of the final buyer and reseller in the resale market determines the strategies followed in the initial auction, in an attempt to understand the existence of these inter-bidder transactions. Theoretical and behavioral analysis is used to develop hypotheses of speculation and demand reduction which are directly tested in a controlled experimental setting. While value bidding is a dominant strategy in a standard English clock auction without resale, when resale is allowed, this theoretical claim is weaker. The second essay continues the examination of auctions followed by resale, but the focus is shifted to the limited liability characteristics of resale. This is then contrasted against default statutes. In auctions where bidders are uncertain of their value and are fully liable for their bids, there exists the potential for losses if bids exceed realized values. Theoretically, bids will be higher if bidders are able to mitigate this downside loss through some form of limited liability. This essay examines a second price auction with uncertain private values in three environments: market-based limited liability, statutory limited liability, and full liability. Market-based limited liability is induced through inter-bidder resale following the auction. Statutory limited liability is created through a default option in the event that a bidder would make a loss. Bids are theoretically shown to be higher under resale, and this result is confirmed in the experimental results. The default option was varied between a high and low penalty. Bid are also theoretically higher under statutory default, but this result only empirically holds for low penalty default, which results in the highest bids. Revenue is highest under a market-based resale limited liability environment, and lowest in the low penalty default treatment given the high rate of default.
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