Effects of resale in second-price auctions with private participation costs

Abstract

We consider second-price auctions with participation costs and investigate the effects of resale after an auction. There are two potential bidders whose valuations are commonly known. Bidders incur a privately known cost to participate in the auction. We examine how resale affects bidders’ entry behavior, seller's expected revenue, and social welfare. We show that resale increases (decreases) entry by the lower-(higher-)value bidder, inducing a “more symmetric” equilibrium, and generates higher revenue for the seller. Furthermore, while resale may be detrimental to ex post welfare, it always increases the ex ante welfare.