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Outside options: Another reason to choose the first-price auction

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  • Kirchkamp, Oliver
  • Poen, Eva
  • Rei, J. Philipp

Abstract

In this paper we study equilibrium and experimental bidding behaviour in first-price and second-price auctions with outside options. We find that bidders do respond to outside options and to variations of common knowledge about competitors' outside options. However, overbidding in first-price auctions is significantly higher with outside options than without. First-price auctions yield more revenue than second-price auctions. This revenue-premium is significantly higher with outside options. In second-price auctions the introduction of outside options has only a small effect.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 53 (2009)
Issue (Month): 2 (February)
Pages: 153-169

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Handle: RePEc:eee:eecrev:v:53:y:2009:i:2:p:153-169

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Auction Outside options Experiments Revenue-premium First-price auction Second-price auction Overbidding Strategy method;

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References

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Citations

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Cited by:
  1. Ivanova-Stenzel, Radosveta & Salmon, Timothy C., 2006. "Revenue Equivalence Revisited," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 175, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Oliver Kirchkamp, & Eva Poen, & Philipp Reiß, 2006. "Outside options: Another reason to choose the first-price auction," CRIEFF Discussion Papers 0605, Centre for Research into Industry, Enterprise, Finance and the Firm.
  3. Theodore L. Turocy & Elizabeth Watson, 2012. "Reservation Values and Regret in Laboratory First-Price Auctions: Context and Bidding Behavior," Southern Economic Journal, Southern Economic Association, vol. 78(4), pages 1163-1180, April.
  4. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.

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