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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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  1. 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.
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  11. 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.
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  24. Todd L. Cherry & Peter Frykblom & John List & Jason Shogren & Melonie Williams, 2002. "Laboratory Testbeds and Nonmarket Valuation: The Case of Bidding Behavior in a Second Price Auction with an Outside Option," Working Papers 02-13, Department of Economics, Appalachian State University.
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