IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0014-2921(08)00031-7
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal European Economic Review.

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

as
in new window

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

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  2. Axel Ockenfels & Reinhard Selten, 2002. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Papers on Strategic Interaction 2002-12, Max Planck Institute of Economics, Strategic Interaction Group.
  3. Smith, Vernon L, 1985. "Experimental Economics: Reply," American Economic Review, American Economic Association, vol. 75(1), pages 264-72, March.
  4. Gale Ian L. & Hausch Donald B., 1994. "Bottom-Fishing and Declining Prices in Sequential Auctions," Games and Economic Behavior, Elsevier, vol. 7(3), pages 318-331, November.
  5. Isaac, R Mark & James, Duncan, 2000. "Just Who Are You Calling Risk Averse?," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 177-87, March.
  6. Robert Dorsey & Laura Razzolini, 2003. "Explaining Overbidding in First Price Auctions Using Controlled Lotteries," Experimental Economics, Springer, vol. 6(2), pages 123-140, October.
  7. Güth, Werner & Ivanova-Stenzel, Radosveta & Wolfstetter, Elmar, 2001. "Bidding behavior in asymmetric auctions: An experimental study," SFB 373 Discussion Papers 2001,15, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  8. Kirchkamp, Oliver & Moldovanu, Benny, 2000. "An experimental analysis of auctions with interdependent valuations," Sonderforschungsbereich 504 Publications 00-10, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  9. Reiss, J. Philipp & Schöndube Jens Robert, 2007. "First-Price Equilibrium and Revenue Equivalence in a Sequential Procurement Auction Model," Research Memorandum 003, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  10. Chen, Kay-Yut & Plott, Charles R., . "Nonlinear Behavior in Sealed Bid First Price Auctions," Working Papers 774, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Pezanis-Christou, P. & Sadrieh, A., 2003. "Elicited Bid Functions in a (a)Symmetric First-Price Auctions," Discussion Paper 2003-58, Tilburg University, Center for Economic Research.
  12. Oliver Kirchkamp & J. Philipp Reiß & Abdolkarim Sadrieh, 2008. "A pure variation of risk in first-price auctions," Jena Economic Research Papers 2008-024, Friedrich-Schiller-University Jena.
  13. Kagel, John H & Levin, Dan, 1993. "Independent Private Value Auctions: Bidder Behaviour in First-, Second- and Third-Price Auctions with Varying Numbers of Bidders," Economic Journal, Royal Economic Society, vol. 103(419), pages 868-79, July.
  14. 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, vol. 58(1), pages 50-74, January.
  15. Werner Güth & Radosveta Ivanova-Stenzel, . "Asymmetric Auction Experiments With(out) Commonly Known Beliefs," Papers on Strategic Interaction 2002-36, Max Planck Institute of Economics, Strategic Interaction Group.
  16. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June.
  17. Werner G¸th & Radosveta Ivanova-Stenzel & Manfred K–nigstein & Martin Strobel, 2003. "Learning to bid - an experimental study of bid function adjustments in auctions and fair division games," Economic Journal, Royal Economic Society, vol. 113(487), pages 477-494, 04.
  18. Gale, I. & Hausch, D., 1992. "Bottom-Fishing and Declining Prices in Sequential Auctions," Working papers 9215, Wisconsin Madison - Social Systems.
  19. 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, vol. 29(3), pages 285-294, November.
  20. Cox, James C & Smith, Vernon L & Walker, James M, 1988. "Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
  21. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
  22. Kathryn Graddy & Orley Ashenfelter, 2002. "Auctions and the Price of Art," Economics Series Working Papers 131, University of Oxford, Department of Economics.
  23. Ivanova-Stenzel, Radosveta & Sonsino, Doron, 2004. "Comparative study of one-bid versus two-bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 54(4), pages 561-583, August.
  24. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
  25. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
  26. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  27. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 139-159, June.
  28. 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, vol. 3(4), pages 461-484, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:53:y:2009:i:2:p:153-169. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.