Outside options: Another reason to choose the first-price auction

Oliver Kirchkamp, Eva Poen, and Philipp Reiß

No 605, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: In this paper we derive equilibrium bidding functions for first-price and second-price auctions with private values when bidders have outside options. We then study bidding behaviour with the help of experiments. We find that bidders respond to outside options and to variations of common knowledge about competitors’ outside options, though bidders in first-price auctions show more overbidding with outside options than without. In second-price auctions overbidding is not affected by outside options. As expected first-price auctions yield more revenue than second-price auctions. This revenue-premium is higher in the presence of outside options.

Keywords: Auction; Experiment; Outside Option (search for similar items in EconPapers)
JEL-codes: C72 C92 D44 (search for similar items in EconPapers)
Date: 2006-06
New Economics Papers: this item is included in nep-exp, nep-fmk and nep-gth
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Related works:
Journal Article: Outside options: Another reason to choose the first-price auction (2009)
Working Paper: Outside options: Another reason to choose the first-price auction (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:0605

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