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Bidding with Outside Options

  • Kirchkamp, Oliver

    ()

    (Sonderforschungsbereich 504)

  • Poen, Eva

    ()

    (University of St. Gallen, FEW-HSG)

  • Reiß, J. Philipp

    ()

    (University of Magdeburg, Faculty of Economics and Management May 2004)

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.

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File URL: http://www.kirchkamp.de/research/outsideoptions.html
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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 04-21.

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Length: 30 pages
Date of creation: 08 Jun 2004
Date of revision:
Handle: RePEc:xrs:sfbmaa:04-21
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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