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

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  • Ping Zhang

    (University of Nottingham)

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.

Suggested Citation

  • Ping Zhang, 2006. "A Complete Characterization of Pure Strategy Equilibrium in Uniform Price IPO Auctions," Discussion Papers 2006-06, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2006-06
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    References listed on IDEAS

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    More about this item

    Keywords

    IPO; uniform price auction; divisible goods; share auctions; tacit collusion;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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