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The Impact of the Irrelevant: Temporary Buy-Options and Bidding Behavior in Auctions

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Article
Author/s: 
Ronald Peeters, Martin Strobel, Dries Vermeulen and Markus Walzl
Games
Issue number: 
7(1)
Publisher: 
MDPI
Year: 
2016
With a laboratory experiment, we study the impact of buy-options and the corresponding buy-price on revenues and bidding behavior in (online) proxy-auctions with independent private valuations. We show that temporary buy-options may reduce revenues for two reasons: At low buy-prices, the application of the buy-option avoids revenue-enhancing bidding; at high buy-prices, bidders are reluctant to bid above the option price (even though the option is no longer available once an auction has started). The latter suggests a particular type of anchoring, where bidders use the buy-price to update their expectations about the strengths of their opponents.
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