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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 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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  3. 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.
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