IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Selling Shares To Retail Investors: Auction Vs. Fixed Price

Author Info

Listed author(s):
  • 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2004-08.pdf
File Function: Fisrt version / Primera version, 2004
Download Restriction: no

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

as
in new window

Length: 36 pages
Date of creation: Feb 2004
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2004-08
Contact details of provider: Postal:
C/ Guardia Civil, 22, Esc 2a, 1o, E-46020 VALENCIA

Phone: +34 96 319 00 50
Fax: +34 96 319 00 55
Web page: http://www.ivie.es/
Email:


More information through EDIRC

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

Other versions of this item:

Find related papers by JEL classification:
  • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
  • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
  • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. 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.
  2. Nautz, D., 1995. "Optimal bidding in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 48(3-4), pages 301-306, June.
  3. Jürgen Bierbaum & Veronika Grimm, 2006. "Selling shares to retail investors: auction vs. fixed price," Review of Economic Design, Springer;Society for Economic Design, 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. 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 733-764.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as
in new window


Cited by:

  1. Veronika Grimm & Jaromir Kovarik & Giovanni Ponti, 2008. "Fixed price plus rationing: an experiment," Experimental Economics, Springer;Economic Science Association, vol. 11(4), pages 402-422, December.
  2. 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.
  3. 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.
  4. Jürgen Bierbaum & Veronika Grimm, 2006. "Selling shares to retail investors: auction vs. fixed price," Review of Economic Design, Springer;Society for Economic Design, vol. 10(2), pages 85-112, August.
  5. Ravi Jagannathan & Ann E. Sherman, 2006. "Why Do IPO Auctions Fail?," NBER Working Papers 12151, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:ivi:wpasad:2004-08. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Departamento de Edición)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.