Auctions with bid credits and resale

Abstract

Bid credits favoring subsets of bidders are routinely imposed on auctions and procurement auctions. These bid credits result in inefficient auction outcomes, which create pressure for post-auction resale or, in a procurement context, for subcontracting. We show that the presence of resale, in turn, affects bidding strategies in such a way that auction outcomes are more likely to be inefficient and less informative, making it harder for resale to correct inefficiencies. The negative effects of bid credits and resale can be mitigated through direct restrictions on resale, tight caps on credits, reserve prices, anonymous bidding, and enhanced competition.