Strategic pricing of equity issues

Klaus Ritzberger and Frank Milne

Economic Theory, 2002, vol. 20, issue 2, 294 pages

Abstract: Consider a general equilibrium model where agents may behave strategically. Specifically, suppose some firm issues new shares. If the primary market price is controlled by the issuing institution and investors' expectations on future equity prices are constant in their share purchases, the share price on the primary market cannot exceed the secondary market share price. In certain cases this may imply strict underpricing of newly issued shares. If investors perceive an influence on future share prices overpriced issues may occur in equilibrium. This provides an example of strategic price manipulation in general equilibrium models with sequential markets.

Keywords: Asset markets; Game theory; General equilibrium; Market manipulation; Public offerings. (search for similar items in EconPapers)
JEL-codes: C72 G24 G32 (search for similar items in EconPapers)
Date: 2002-02-26
Note: Received: March 14, 2000; revised version: May 15, 2001
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Citations: View citations in EconPapers (3)

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