Selling Shares To Retail Investors: Auction Vs. Fixed Price
AbstractWe 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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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2004-08.
Length: 36 pages
Date of creation: Feb 2004
Date of revision:
Publication status: Published by Ivie
IPO; Uniform Price Auction; Open Offer; Proportional Rationing.;
Other versions of this item:
- 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.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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