Capacity constraints and the winner's curse in multi-unit common value auctions
AbstractWe explore the role of capacity constraints in establishing efficient pricing in multi-unit common value auctions in a setting relevant to auction-based equity IPOs. The method of inquiry is experimental economics. We find that sufficiently large capacity constraints mitigate the overbidding that plagues single-unit auctions and is one of the most robust laboratory findings. We also uncover a puzzling propensity for most bidders to place a portion of their bids at prices above their signals. This disequilibrium behavior persists with experience and in cases with substantial losses in previous auctions. Our results suggest caution is warranted in promoting auction based IPOs that allow unrestricted access by the non-professional investing public.
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Bibliographic InfoArticle provided by Elsevier in its journal The Quarterly Review of Economics and Finance.
Volume (Year): 53 (2013)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/inca/620167
Winner's curse; Capacity constraints; IPOs; Common value auctions; Multi-unit auctions;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
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