Outside options: another reason to choose the first-price auction
Reiß, J. Philipp
European Economic Review
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.
Pre-print draft dated October 2005. Final version published by Elsevier; available online at http://www.sciencedirect.com/
Vol. 53, Issue 2, pp. 153 - 169