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A Complete Characterization of Pure Strategy Equilibrium in Uniform Price IPO Auctions

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  • Ping Zhang

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    (University of Nottingham)

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    Abstract

    Collusive 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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    File URL: http://www.nottingham.ac.uk/cedex/documents/papers/2006-06.pdf
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    Bibliographic Info

    Paper 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.

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    Date of creation: Apr 2006
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    Handle: RePEc:not:notcdx:2006-06

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    Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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    Web page: http://www.nottingham.ac.uk/economics/cedex/
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    Related research

    Keywords: IPO; uniform price auction; divisible goods; share auctions; tacit collusion;

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