IDEAS home Printed from https://ideas.repec.org/p/cmu/gsiawp/217.html
   My bibliography  Save this paper

Rationing in IPOs

Author

Listed:
  • Christine Parlour
  • Uday Rajan

Abstract

We consider a rationing mechanism for selling a common-value object. Under certain conditions, the seller earns higher revenue from rationing the object, rather than holding a second-price auction. The mechanism is formally equivalent to dividing the object into k units, and allocating (1/k) units to each of the k highest bidders, at the (k+1)th highest price, for some k > 1. We argue that, in the presence of a liquid secondary market, financial assets are reasonably modeled as having common values. Rationing is commonly observed in IPOs, and this result suggests that it may be superior to allocating the shares at a market-clearing price. In equilibrium, underpricing persists in our model, but is less than it would be with a second-price auction.

Suggested Citation

  • Christine Parlour & Uday Rajan, "undated". "Rationing in IPOs," GSIA Working Papers 217, Carnegie Mellon University, Tepper School of Business.
  • Handle: RePEc:cmu:gsiawp:217
    as

    Download full text from publisher

    File URL: http://sobers.tepper.cmu.edu/papers/ration.pdf
    Download Restriction: no
    ---><---

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cmu:gsiawp:217. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Steve Spear (email available below). General contact details of provider: https://www.cmu.edu/tepper .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.