Optimal Auctions with Public Outside Options

Abstract

This note considers the Symmetric Independent Private Values Model with public outside options that are buyer-sided. Since outside options for buyers increase the degree of competition from the seller's point of view, intuition suggests that a revenue-maximizing seller might seek to enhance the competitiveness of her auction offer. In contrast, it is shown that the optimal response to outside options calls for a less competitive auction as measured by the probability of a sale. For the first-price and second-price auction, it is shown how the optimal minimum bid varies with the level of competition.