RULE CHANGES AND UNCERTAINTY IN DISCRIMINATORY AND UNIFORM PRICE AUCTIONS

Jaclyn Beierlein, Hideaki Kiyoshi Kato
2007 Journal of Financial Research  
The auction literature indicates that uncertainty about the value of auctioned goods increases underpricing in discriminatory price auctions. Such uncertainty has a smaller effect on uniform price auctions because the pricing rule aggregates bidders' information. We find that uncertainty resulting from inexperience with an auction mechanism has similar effects. Using initial public offering (IPO) data from Japan and Israel, we find that average underpricing increases temporarily in Japan's
more » ... iminatory price auctions after changes in the auction rules, which suggests that bidders reduce their bids in response to uncertainty. Underpricing in Israel's uniform price auctions is not affected by rule changes. JEL Classification: D44 * * * Difference significant at the 1% level. * * Difference significant at the 5% level. * Difference significant at the 10% level. V. Conclusions Discriminatory price and uniform price auctions are used around the world to sell divisible goods such as Treasury securities, IPOs of common stock, foreign exchange, and gold; thus, it is important to understand the trade-offs inherent in the choice between the auction formats. The theoretical and empirical auction literature
doi:10.1111/j.1475-6803.2007.00203.x fatcat:xmpmaw6h4zcd3bva4zj7v6uz3u