The Optimality of Uniform Pricing in IPOs: An Optimal Auction Approach

Moez Bennouri () and Sonia Falconieri

Review of Finance, 2008, vol. 12, issue 4, 673-700

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. Copyright 2008, Oxford University Press.

Date: 2008
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