Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales

When bidders anticipate an opportunity for resale trade, tlze value of winning an auction is determined in part by the option values of buying and selling in tlze secondary market. One iinplication is that a bidder's willingness to pa)) at an auction increases with the expected level of competition between resale buyers. Empirical evidence from auctions of timber contracts supports this prediction and rejects standard inodels that ignore resale. The estiinated effect is smaller after policy changes expected to diminish the prevalence of resale. Additional evidence supports tlze predictedpresence of a cominon value element introclucecl bjl the resale opportunity. (JEL D44, D82, C52, L73)