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Uniform Price Auction and Fixed Price Offerings in IPO: An Experimental Comparison

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Author Info
Ping Zhang () (School of Economics, University of Nottingham)
Abstract

We compare the performances of uniform price auctions with fixed price offerings using laboratory experiments. In the uniform treatment, there is no evidence that the tacit collusion equilibrium has been achieved. On the contrary, subjects with higher expected value bid more aggressively. Their behaviour is close to an equilibrium derived where all players participate. The resulting market prices are significantly higher than the market value of a bidder with a low value signal. As a consequence, in our experiment uniform price auctions are superior to fixed price offerings in terms of revenue raising.

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Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2005-20.

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Date of creation: Oct 2005
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Handle: RePEc:cdx:dpaper:2005-20

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Related research
Keywords: experiment; IPO; uniform price auction; fixed price offering; multi-unit demand; divisible goods;

Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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  1. Klaus Abbink & Jordi Brandts & Paul Pezanis-Christou, 2002. "Auctions for Government Securities: A Laboratory Comparison of Uniform, Discriminatory and Spanish Designs," UFAE and IAE Working Papers 551.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
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  2. Lawrence M. Ausubel & Peter Cramton, 1997. "Auctioning Securities," Papers of Peter Cramton 98wpas, University of Maryland, Department of Economics - Peter Cramton, revised Mar 1998. [Downloadable!]
  3. Kirchkamp, Oliver & Moldovanu, Benny, 2004. "An experimental analysis of auctions with interdependent valuations," Games and Economic Behavior, Elsevier, vol. 48(1), pages 54-85, July. [Downloadable!] (restricted)
    Other versions:
  4. Hausch, Donald B & Li, Lode, 1993. "A Common Value Auction Model with Endogenous Entry and Information Acquisition," Economic Theory, Springer, vol. 3(2), pages 315-34, April.
  5. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212. [Downloadable!] (restricted)
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  7. Levin, Dan & Kagel, John H & Richard, Jean-Francois, 1996. "Revenue Effects and Information Processing in English Common Value Auctions," American Economic Review, American Economic Association, vol. 86(3), pages 442-60, June. [Downloadable!] (restricted)
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    Other versions:
  9. Dirk Engelmann & Veronika Grimm, 2003. "Bidding Behavior in Multi-Unit Auctions - An Experimental Investigation and some Theoretical Insights," CERGE-EI Working Papers wp210, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
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  10. Goswami, Gautam & Noe, Thomas H & Rebello, Michael J, 1996. "Collusion in Uniform-Price Auctions: Experimental Evidence and Implications for Treasury Auctions," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 9(3), pages 757-85. [Downloadable!] (restricted)
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  11. Bikhchandani, Sushil & Huang, Chi-fu, 1993. "The Economics of Treasury Securities Markets," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 117-34, Summer. [Downloadable!] (restricted)
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  15. Grinblatt, Mark & Hwang, Chuan Yang, 1989. " Signalling and the Pricing of New Issues," Journal of Finance, American Finance Association, vol. 44(2), pages 393-420, June. [Downloadable!] (restricted)
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  18. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November. [Downloadable!] (restricted)
  19. Ilan Kremer, 2004. "Underpricing and Market Power in Uniform Price Auctions," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 17(3), pages 849-877. [Downloadable!] (restricted)
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  20. Koh, Francis & Walter, Terry, 1989. "A direct test of Rock's model of the pricing of unseasoned issues," Journal of Financial Economics, Elsevier, vol. 23(2), pages 251-272, August. [Downloadable!] (restricted)
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  23. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(4), pages 733-64. [Downloadable!] (restricted)
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  25. Ibbotson, Roger G., 1975. "Price performance of common stock new issues," Journal of Financial Economics, Elsevier, vol. 2(3), pages 235-272, September. [Downloadable!] (restricted)
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    Other versions:
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