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

  • Oliver Kirchkamp

    ()

    (University of Jena, School of Economics)

  • Eva Poen

    ()

    (University of Nottingham)

  • J. Philipp Reiß

    ()

    (Maastricht University, Economics Department)

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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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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  12. Kathryn Graddy & Orley Ashenfelter, 2002. "Auctions and the Price of Art," Economics Series Working Papers 131, University of Oxford, Department of Economics.
  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.
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  20. 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.
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  23. 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.
  24. 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.
  25. 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.
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