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Equilibrium bidding and expected revenue ranking when bidders have outside options

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  • Dastidar, Krishnendu Ghosh
  • Agrawal, Ramesh Kumar

Abstract

The canonical auction model overlooks the influence of bidders’ outside options, which are prevalent in real-world settings and affect bidding behavior. This paper revisits equilibrium bidding strategies and revenue rankings in private-value auctions, incorporating bidders’ outside options. Analyzing first-price, second-price, and all-pay auctions, we show that outside options materially impact bidding strategies and expected revenues. Equilibrium bids are lowest in all-pay and highest in second-price auctions, regardless of outside option characteristics. Moreover, we establish a clear ranking of expected revenues across these auction types, determined entirely by the marginal utility of the outside option.

Suggested Citation

  • Dastidar, Krishnendu Ghosh & Agrawal, Ramesh Kumar, 2026. "Equilibrium bidding and expected revenue ranking when bidders have outside options," Research in Economics, Elsevier, vol. 80(2).
    • Handle: RePEc:eee:reecon:v:80:y:2026:i:2:s1090944326000281
    DOI: 10.1016/j.rie.2026.101140
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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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