The Spanish Auction for Government Securities: A Laboratory Analysis

Abstract

The Bank of Spain uses a unique auction format to sell government bonds, which can be seen as a hybrid of a uniform and a discriminatory auction. For winning bids above the average winning bid, buyers are charged the average winning bid, otherwise they pay their respective bids. We report an experiment that compares this auc-tion format to the discriminatory format used in most other countries. We use a common value model with multi-unit supply and two-unit demand. The results show significantly higher revenue with the Spanish format, while volatility of prices over time is lower with the discriminatory format. Our data also exhibit the use of bid-spreading strategies.