Department of Economics

This paper contributes to the literature on second-price auctions with resale. We add speculators—bidders with value zero—to the standard symmetric independent private values environment. There always exists a continuum of inefficient equilibria that are profitable for a speculator. With no reserve price in the initial auction, specu-lation can enhance the initial seller’s expected revenue. On the other hand, speculation can harm the initial seller even if she commits to an optimal reserve price. Our results are valid for English auctions as well.