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Selling Shares To Retail Investors: Auction Vs. Fixed Price

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  • Veronika Grimm

    ()
    (Universidad de Alicante)

  • Jürgen Bierbaum

    (Humboldt-Universität Berlin, Institut für Wirtschaftstheorie)

Abstract

We analyze the problem of selling shares of a divisible good to a large number of buyers when demand is uncertain. We characterize equilibria of two popular mechanisms, a fixed price mechanism and a uniform price auction, and compare the revenues. While in the auction truthful bidding is a dominant strategy, we find that bidders have an incentive to overstate their demand in the fixed price mechanism. For some parameter values this yields the surprising result that the fixed price mechanism outperforms the auction.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2004-08.pdf
File Function: Fisrt version / Primera version, 2004
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2004-08.

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Length: 36 pages
Date of creation: Feb 2004
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2004-08

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Related research

Keywords: IPO; Uniform Price Auction; Open Offer; Proportional Rationing.;

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References

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  1. repec:wop:humbsf:2000-72 is not listed on IDEAS
  2. Sherman, Ann E. & Titman, Sheridan, 2002. "Building the IPO order book: underpricing and participation limits with costly information," Journal of Financial Economics, Elsevier, vol. 65(1), pages 3-29, July.
  3. Nautz, D. & Wolfstetter, E., 1997. "Bid shading and risk aversion in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 56(2), pages 195-200, October.
  4. Biais, Bruno & Faugeron-Crouzet, Anne-Marie, 2000. "IPO Auctions: English, Dutch, ... French and Internet," IDEI Working Papers 104, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Nautz, D., 1995. "Optimal bidding in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 48(3-4), pages 301-306, June.
  6. Veronika Grimm & Jürgen Bierbaum, 2004. "Selling Shares To Retail Investors: Auction Vs. Fixed Price," Working Papers. Serie AD 2004-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  7. Herrero, Carmen & Villar, Antonio, 2001. "The three musketeers: four classical solutions to bankruptcy problems," Mathematical Social Sciences, Elsevier, vol. 42(3), pages 307-328, November.
  8. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
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Citations

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Cited by:
  1. Jürgen Bierbaum & Veronika Grimm, 2006. "Selling shares to retail investors: auction vs. fixed price," Review of Economic Design, Springer, vol. 10(2), pages 85-112, August.
  2. Veronika Grimm & Jaromir Kovarik & Giovanni Ponti, 2008. "Fixed price plus rationing: an experiment," Experimental Economics, Springer, vol. 11(4), pages 402-422, December.
  3. Guray Kucukkocaoglu, 2007. "Underpricing in Turkey: Comparison of the IPO Methods," Money Macro and Finance (MMF) Research Group Conference 2006 8, Money Macro and Finance Research Group.
  4. Ravi Jagannathan & Ann E. Sherman, 2006. "Why Do IPO Auctions Fail?," NBER Working Papers 12151, National Bureau of Economic Research, Inc.
  5. Ping Zhang, 2009. "Characterization of Pure Strategy Equilibria in Uniform Price IPO Auctions," Discussion Papers 2009-05, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  6. Guray Kucukkocaoglu & Ozge Sezgin Alp, 2012. "IPO mechanism selection by using Classification and Regression Trees," Quality & Quantity: International Journal of Methodology, Springer, vol. 46(3), pages 873-888, April.

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