Security auctions with cash- and equity-bids: An experimental study

We study the performance of cash- and equity-bid security auctions in an experiment using first- and second-price pricing rules. Theory predicts revenue equivalence between first- and second-price formats, equity auctions to generate more revenue than cash auctions, and for all formats to be efficient. We find that, on average, equity auctions produce larger revenue than cash auctions in absolute terms but not relative to equilibrium predictions. Important factors driving this result are substantial underbidding, large variance, and bidding functions being flatter in equity auctions. Furthermore, we find that first-price auctions produce larger revenues than second-price auctions, and cash auctions to be more efficient.