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Selling shares to retail investors: auction vs. fixed price

  • Jürgen Bierbaum

    ()

  • Veronika Grimm

    ()

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://hdl.handle.net/10.1007/s10058-006-0007-y
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Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 10 (2006)
Issue (Month): 2 (August)
Pages: 85-112

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Handle: RePEc:spr:reecde:v:10:y:2006:i:2:p:85-112
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  1. Ann E. Sherman & Sheridan Titman, 2000. "Building the IPO Order Book: Underpricing and Participation Limits With Costly Information," NBER Working Papers 7786, National Bureau of Economic Research, Inc.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Nautz, D., 1995. "Optimal bidding in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 48(3-4), pages 301-306, June.
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