An Experimental Investigation of a Hybrid Auction.¤

In this paper we report the results of an experiment designed to examine the properties of a hybrid auction a Dutch-Vickrey auction, that combines a sealed bid ...rst-price auction with a sealed bid second-price auction. We developed an independent-private-values model that yielded various predictions in terms of equilibrium behavior and expected revenue. We then designed an experiment where individuals participate in a sequence of independent ...rst-price auctions followed by a sequence of hybrid auctions. Several conclusions emerged from this experimental study. Firstly, ex-post e¢ciency was achieved overwhelmingly by the hybrid auctions. Secondly, although overbidding (with respect to the risk-neutral Bayesian Nash equilibrium) was a regular feature of participants’ bidding behavior in the ...rst-price auctions – as it is commonly reported in most experimental studies of ...rst-price auctions – it was less frequent in the hybrid auctions. By calibrating the results to allow for risk-averse behavior we were able to account for a signi...cant part of the overbidding. Finally, ¤We are thankful to the direct ...nancial support provided by EPGE/FGV. Dutra also acknowledges the ...nancial support from CNPq and Menezes acknowledges the ...nancial support from CNPq and ARC (Grant no. A000000055). We thank Aloisio Araujo, John Asker, Tim Cason, Simon Grant and Sergio Werlang for useful comments.