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

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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