SECRET RESERVE PRICES IN A BIDDING MODEL WITH A RESALE OPTION

This paper presents an auction model in which the seller may choose no t to sell in spite of receiving a bid above the announced reserve pric e. Such behavior is seen frequently in auctions, yet would be suboptim al within most existing models. Here, the seller uses resale to signal information about the object's value that could not easily be communi cated via a reserve price announcement. The model predicts that bids f or reauctioned objects increase relative to initial bids and that, on average, prices of both reauctioned items and those sold at initial au ction rise as delay in reauctioning increases.