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

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Author Info

  • Oliver Kirchkamp

    ()
    (University of Jena, School of Economics)

  • Eva Poen

    ()
    (University of Nottingham)

  • J. Philipp Reiß

    ()
    (Maastricht University, Economics Department)

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

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2008-022.

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Date of creation: 18 Feb 2008
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Handle: RePEc:jrp:jrpwrp:2008-022

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Keywords: Experiments; Auction; Expectations;

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References

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  1. Axel Ockenfels & Reinhard Selten, 2004. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Working Paper Series in Economics, University of Cologne, Department of Economics 7, University of Cologne, Department of Economics.
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  3. Pezanis-Christou, P. & Sadrieh, A., 2003. "Elicited Bid Functions in a (a)Symmetric First-Price Auctions," Discussion Paper, Tilburg University, Center for Economic Research 2003-58, Tilburg University, Center for Economic Research.
  4. Kirchkamp, Oliver & Moldovanu, Benny, 2004. "An experimental analysis of auctions with interdependent valuations," Games and Economic Behavior, Elsevier, Elsevier, vol. 48(1), pages 54-85, July.
  5. Brosig, Jeannette & Rei[ss], J. Philipp, 2007. "Entry decisions and bidding behavior in sequential first-price procurement auctions: An experimental study," Games and Economic Behavior, Elsevier, Elsevier, vol. 58(1), pages 50-74, January.
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  8. Todd Cherry & Peter Frykblom & Jason Shogren & John List & Melonie Sullivan, 2004. "Laboratory Testbeds and Non-Market Valuation: The Case of Bidding Behavior in a Second-Price Auction with an Outside Option," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 29(3), pages 285-294, November.
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  13. Kirchkamp, Oliver & Reiss, J. Philipp & Sadrieh, Abdolkarim, 2006. "A pure variation of risk in first-price auctions," Research Memorandum 058, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  14. Werner Güth & Radosveta Ivanova-Stenzel & Manfred Königstein & Martin Strobel, 2002. "Bid Functions in Auctions and Fair Division Games: Experimental Evidence," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 3(4), pages 461-484, November.
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Citations

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Cited by:
  1. Elizabeth Watson & Theodore L. Turocy, 2011. "Reservation values and regret in laboratory first price auctions: Context and bidding behavior," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS), School of Economics, University of East Anglia, Norwich, UK. 11-14, School of Economics, University of East Anglia, Norwich, UK..
  2. Sascha Füllbrunn & Tibor Neugebauer, 2013. "Varying the number of bidders in the first-price sealed-bid auction: experimental evidence for the one-shot game," Theory and Decision, Springer, Springer, vol. 75(3), pages 421-447, September.
  3. Young Han Lee & Ulrike Malmendier, 2007. "The Bidder's Curse," NBER Working Papers 13699, National Bureau of Economic Research, Inc.
  4. 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.
  5. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
  6. Kirchkamp, Oliver & Reiss, J. Philipp & Sadrieh, Abdolkarim, 2008. "A pure variation of risk in private-value auctions," Research Memorandum 050, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  7. Tibor Neugebauer & Sascha Fllbrunn, 2013. "Varying the number of bidders in the first-price sealed-bid auction: experimental evidence for the one-shot game," LSF Research Working Paper Series, Luxembourg School of Finance, University of Luxembourg 13-10, Luxembourg School of Finance, University of Luxembourg.

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