Auctions are being used every day and lead to transactions of very high total value. Apart from the traditional auctions for physical objects like flowers, art and wine, companies and organizations use auctions to sell immaterial objects such as licences, internet ads (worth $40 billion for google alone) etc. This project aims to analyse how auctions work when a speculator is known to participate. Previous theoretical work has shown that when resale possibilities exist, the presence of speculator can substantially alter the strategic behavior of serious bidders. Instead of bidding for the object, serious bidders make extremely low bids and wait for an offer from the speculator in the resale market.This obviously hurts the initial seller and can result in inefficient allocations of goods.The interesting theoretical predictions will be tested empirically in this study, using laboratory experiments. Real human participants are presented with a simulation of an auction environment that is relevant to the theory, and are paid according to their success. The purpose is to see whether the theoretical predictions hold, and if not, what models of bounded rationality can actually explain subject behavior. Findings can the be used to design better auction mechanisms.

Computerised incentivised experiments