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Collusion, Custom, or Negotiation Costs?

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Author Info
Duke Bristow (Anderson School of Management)
Laura Field (Anderson School of Management)
Abstract

This paper supports and extension of the negotiation hypothesis begun in Harris (1991) and calls into question the evidence of implicit collusion developed in Christie and Schultz (1994). This paper documents the distribution of prices per share for initial public offerings, mergers and acquisitions, and self-tender offers. These markets were selected because they lack the potential for bid-ask collusion. Despite the lack of bid-ask collusion in IPOs, M&As, and self-tenders, prices are often quoted in rounded amounts per share avoiding quotes ending in add eighths, off quarters, and odd halves. Two new hypotheses are offered to explain the lack of off-eighths quotes and other previously unexplained pricing phenomena.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1137&context=anderson/fin
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Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number 1137.

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Date of creation: 01 Oct 1996
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Handle: RePEc:cdl:anderf:1137

Note: oai:cdlib1:anderson/fin-1137
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  1. Godek, Paul E., 1996. "Why Nasdaq market makers avoid odd-eighth quotes," Journal of Financial Economics, Elsevier, vol. 41(3), pages 465-474, July. [Downloadable!] (restricted)
  2. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April. [Downloadable!] (restricted)
  3. Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-40, December. [Downloadable!] (restricted)
  4. Grossman, Sanford J, et al, 1997. "Clustering and Competition in Asset Markets," Journal of Law & Economics, University of Chicago Press, vol. 40(1), pages 23-60, April.
  5. R. H. Coase, 1972. "Industrial Organization: A Proposal for Research," NBER Chapters, in: Economic Research: Retrospect and Prospect Vol 3: Policy Issues and Research Opportunities in Industrial Organization, pages 59-73 National Bureau of Economic Research, Inc. [Downloadable!]
  6. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May. [Downloadable!] (restricted)
  7. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December. [Downloadable!] (restricted)
  8. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 4(3), pages 389-415. [Downloadable!] (restricted)
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