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Abstract

This paper uses an optimal auction approach to investigate the conditions under which uniform pricing in IPOs is optimal. We show that the optimality of a uniform price in IPOs depends crucially on whether the (optimal) allocation rule is restricted. These restrictions may stem from the retail investors' budget constraint and/or from the institutional investors' preferences. We show that the main determinant of the optimality of a uniform pricing rule is the existence and the shape of the retail investors' budget constraint. In contrast, institutional investors' preferences are shown to mainly affect the optimal allocation rule.

Publication Type:	Article
Additional Information:	This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The version of record Bennouri, M & Falconieri, S (2008). The Optimality of Uniform Pricing in IPOs: An Optimal Auction Approach. REVIEW OF FINANCE, 12(4), pp673-700 is available online at: http://dx.doi.org/10.1093/rof/rfn006
Publisher Keywords:	Initial Public Offering, Price Discrimination, Rationing, Optimal Auction
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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