A Complete Characterization of Pure Strategy Equilibrium in Uniform Price IPO Auctions
AbstractCollusive equilibria in share auctions despite being the focus of previous theoretical research, have received little empirical or experimental support. We develop a theoretical model of uniform price initial public offering (IPO) auctions and show that there exists a continuum of pure strategy equilibria where investors with a higher expected valuation bid more aggressively and as a result the market price increases with the market value. The collusive equilibria lie in fact on the boundary of this set, which is obtained under stricter conditions when demand is discrete than in the continuous format. Our results have important implications for the design of IPO auctions.
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Bibliographic InfoPaper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2006-06.
Date of creation: Apr 2006
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IPO; uniform price auction; divisible goods; share auctions; tacit collusion;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-21 (All new papers)
- NEP-FIN-2006-07-21 (Finance)
- NEP-FMK-2006-07-21 (Financial Markets)
- NEP-MIC-2006-07-21 (Microeconomics)
- NEP-MST-2006-07-21 (Market Microstructure)
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