Equilibrium bidding and expected revenue ranking when bidders have outside options

Krishnendu Dastidar and Ramesh Kumar Agrawal

Research in Economics, 2026, vol. 80, issue 2

Abstract: The canonical auction model overlooks the influence of bidders’ outside options, which are prevalent in real-world settings and affect bidding behavior. This paper revisits equilibrium bidding strategies and revenue rankings in private-value auctions, incorporating bidders’ outside options. Analyzing first-price, second-price, and all-pay auctions, we show that outside options materially impact bidding strategies and expected revenues. Equilibrium bids are lowest in all-pay and highest in second-price auctions, regardless of outside option characteristics. Moreover, we establish a clear ranking of expected revenues across these auction types, determined entirely by the marginal utility of the outside option.

Keywords: Auctions; Outside options; Bids; Expected revenue (search for similar items in EconPapers)
JEL-codes: D44 D72 D82 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:80:y:2026:i:2:s1090944326000281

DOI: 10.1016/j.rie.2026.101140

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