Auctions with resale markets: An application to US forest service timber sales

When bidders anticipate an opportunity for resale trade, the value of winni ng an auction is determined in part by the option values of buying and sell ing in the secondary market. One implication is that a bidder's willingness to pay at an auction increases with the expected level of competition betw een resale buyers. Empirical evidence from auctions of timber contracts sup ports this prediction and rejects standard models that ignore resale, The e stimated effect is smaller after policy changes expected to diminish the pr evalence of resale. Additional evidence supports the predicted presence of a common value element introduced by the resale opportunity.