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Hybrid Auctions I: Theory

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  • Menezes, Flavio Marques
  • Dutra, Joísa Campanher

Abstract

In this paper we examine the properties of a hybrid auction that combines a sealed bid and an ascending auction. In this auction, each bidder submits a sealed bid. Once the highest bid is known, the bidder who submitted it is declared the winner if her bid is higher than the second highest by more than a predetermined amount or percentage. If at least one more bidder submitted a bid su¢ciently close to the highest bid (that is, if the di¤erence between this bid and the highest bid is smaller than the predetermined amount or percentage) the quali…ed buyers compete in an open ascending auction that has the highest bid of the …rst stage as the reserve price. Quali…ed bidders include not only the highest bidder in the …rst stage but also those who bid close enough to her. We show that this auction generates more revenue than a standard auction. Although this hybrid auction does not generate as much revenue as the optimal auction, it is ex-post e¢cient.

Suggested Citation

  • Menezes, Flavio Marques & Dutra, Joísa Campanher, 2001. "Hybrid Auctions I: Theory," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 421, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:421
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    References listed on IDEAS

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    1. Menezes, Flavio M., 1996. "Multiple-unit English auctions," European Journal of Political Economy, Elsevier, vol. 12(4), pages 671-684, December.
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    3. Eric Maskin & John Riley, 2000. "Equilibrium in Sealed High Bid Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(3), pages 439-454.
    4. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
    5. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    6. Maskin, Eric S & Riley, Joan G, 1985. "Auction Theory with Private Values," American Economic Review, American Economic Association, vol. 75(2), pages 150-155, May.
    7. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
    8. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
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