Bidding with Outside Options
We introduce and experimentally test an auction model that allows for outside options of bidders as substitutes for the auctioned object under the private values assumption. Theoretically and in the experiments, bidders respond to their individual outside options and to variations of common knowledge about competitors outside options. Interestingly, private outside options induce concave equilibrium bidding functions with uniformly distributed valuations. The bidding data does support this property. As theoretically predicted, lower-valued outside options lead individuals to bid more aggressively in the experiments.
|Date of creation:||08 Jun 2004|
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|Note:||Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged. We thank Rachel Croson, Dan Friedman, Johanna Goertz, and Stefan Trautmann for helpful comments and stimulating discussions.|
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