The impact of resale on entry in second price auctions

• We examine the impact of resale on entry in a second price auction.
• We characterize the equilibrium in cutoff strategies in the auction.
• If bargaining power is large, the leading bidder has a higher incentive to enter.
• If bargaining power is small, the following bidder has a lower incentive to enter.
• Asymmetric bidders and the original seller’s expected revenue are discussed.

This paper investigates the effect of resale allowance on entry strategies in a second price auction with two bidders whose entries are sequential and costly. We first characterize the perfect Bayesian equilibrium in cutoff strategies. We then show that there exists a unique threshold such that if the reseller’s bargaining power is greater (less) than the threshold, resale allowance causes the leading bidder (the following bidder) to have a higher (lower) incentive on entry; i.e., the cutoff of entry becomes lower (higher). We also discuss asymmetric bidders and the original seller’s expected revenue.