Speculation in procurement auctions (Q6072238): Difference between revisions

It is known that a speculator can take advantage of a procurement auction by acquiring items for sale before the auction. In this article, the author show that speculation always generates a positive expected profit in second-price auctions but could be unprofitable in first-price auctions. More precisely, in second-price auctions, the speculator earns positive expected profits by optimally choosing the acquisition price offered to the sellers (Proposition 2), in contrast, speculation could be unprofitable in first-price auctions (Proposition 4), the expected profit from speculation is always higher in second-price auctions than in first-price auctions (Proposition 5). Section 4 contains equilibrium characterization and analysis in the first-price auction case. Section 5 juxtaposes the results obtained under different auction formats. Section 6 includes two extensions to the baseline model.