IPO Auctions: English, Dutch, ... French, and Internet

Journal of Financial Intermediation 11, 9–36 (2002) 

doi:10.1006/jfin.2001.0319, available online at http://www.idealibrary.com on 

IPO Auctions: English, Dutch, ...French, and Internet ∗ 

Bruno Biais 

Université de Toulouse, IDEI, Place Anatole France, 31200 Toulouse, France 

and 

Anne Marie Faugeron-Crouzet 

Université de Paris Val de Marne, 61, avenue du Général de Gaulle, 94010 Créteil Cedex, France 

Received December 6, 1999 

Unseasoned shares are sold through the Book Building process in the United States and 

the United Kingdom, fixed price offerings in several countries, uniform price auctions in 

Israel or the new internet-based Open IPO mechanism, and an auction-like mechanism called 

the Mise en Vente in France. We analyze and compare the performance of these various 

IPO mechanisms within the context of a unified theoretical model. Fixed price offerings 

lead to inefficient pricing and winner’s curse. Dutch auctions can also lead to inefficiencies, 

to the extent that they are conducive to tacit collusion by investors. The Book Building and 

Mise en Vente can lead to optimal information elicitation and price discovery. We document 

empirically the similarity between the Book Building and the Mise en Vente. We discuss 

the implications of our analysis for the design of optimal Internet IPO auctions. Journal of 

Economic Literature Classification Numbers: G24, G3, D82. C○ 2002 Elsevier Science (USA) 

∗ Many thanks to Tom Chemmanur and the two referees for helpful comments, and to the Paris Bourse 

for financial support, access to data, and many insights, especially Jacky Billard, Martine Charbonnier, 

Didier Davydoff, Dominique Leblanc, Bernard Mirat, Alain Morice, and Pascal Samaran. We are also 

grateful for helpful discussions with Michael Fishman, Jean–Pierre Florens, Julian Franks, Sylvain 

Friedrich, David Goldreich, Richard Green, Michel Habib, Shmuel Kandel, Kjell Nyborg, Pegaret 

Pichler, Jean Charles Rochet, Chester Spatt, Bill Wilhelm, Luigi Zingales, and seminar participants at 

the University of Chicago, the London Business School, the London School of Economics conference 

on trading markets for smaller companies, the Utah Winter Conference, the CEPR Summer Symposium 

on Financial Economics, the conference “Raising Capital in Different National Markets” in Frankfurt, 

the 2000 Meetings of the American Finance Association and the Journal of Financial Intermediation 

Conference on New Technologies, Financial Innovation and Intermediation at Boston College. 

9 

1042-9573/02 $35.00 

c○ 2002 Elsevier Science (USA) 

All rights reserved.

10 BIAIS AND FAUGERON-CROUZET 

1. INTRODUCTION 

One of the major benefits of public listing on stock exchanges is the rich flow 

of information, about the firm’s prospects and the investors’ willingness to hold 

its shares, that is reflected in prices and trades in the secondary market. Prior to 

the IPO very little such information is available. Consequently, the task of finding 

the IPO price is a difficult one. The auction by which the unseasoned shares are 

sold can therefore play an important role in eliciting information from the market 

participants about their valuation of the stock. Yet IPO auction mechanisms vary 

quite significantly across countries, and their ability to elicit information revelation 

from investors is likely to also vary (see Loughran et al. (1994) and Sherman 

(1999)): 

• In the United States and the United Kingdom, in the Book Building method, 

the investment banker elicits indications of interest from institutional investors and 

uses these indications to set the IPO price and allocate the shares (see Benveniste 

and Spindt (1989), Benveniste and Wilhelm (1990 and 1997), Spatt and Srivastava 

(1991), Hanley (1993), Hanley and Wilhelm (1993), and Cornelli and Goldreich 

(1998)). 

• In Singapore, Finland, and the United Kingdom, fixed price offers are used, 

whereby investors submit demands at the fixed price, and (possibly random) rationing 

rules are used to allocate the shares (see Koh and Walter (1989), Levis 

(1990), and Keloharju (1993)). 

• In Israel, IPOs are conducted according to the standard uniform price, market 

clearing, Dutch auction, whereby the price is set to equate supply and demand (see 

Kandel et al. (1997)). 

• In the Mise en Vente, an auction-like IPO method commonly used in France, 

investors submit limit orders and then the auctioneer sets the price as a function 

of aggregate demand (the name of this auction procedure has been recently 

changed to Offre a Prix Minimum, but its workings have not been altered). In 

this IPO mechanism the price does not clear the market, and prorata rationing 

is used. For descriptions and analyses of this IPO method see Belletante and 

Palliard (1993), Derrien and Womack (1999), Dubois (1989), Husson and 

Jacquillat (1989), Jacquillat and Mac Donald (1974), Jacquillat et al. (1978), 

Leleux (1993), and Mirat (1983, 1984). 

The diversity of unseasoned shares selling mechanisms has actually even increased 

in the recent past as new, internet-based IPO auctions have been recently 

proposed (see Wilhelm (1999)): 

• Open IPO offers to sell unseasoned shares through a Dutch auction. In its 

advertising (for example on its website: www.openipo.com) it emphasizes that 

the use of this standard uniform price, market clearing auction ensures that “IPO 

offfering prices are set by the market” and reflect “what people are truly willing to 

pay for the stock.” It also advises that “investors should make a bid at the maximum

IPO AUCTIONS 11 

TABLE 1 

IPO Selling Mechanisms in Different Countries 

U.K. U.S. Wit capital Singapore Finland U.K. Israel Open IPO France 

Institution Book building Fixed price Dutch (uniform Mise en 

auction price) auction Vente 

Price set before after before after after 

of after 

demand 

Price clears no no yes no 

market 

Rationing rule discretionary prorata or — prorata 

random 

price at which they are comfortable owning shares of the issue.” In fact, Open IPO 

has sometimes been presented as an alternative for the standard Book Building 

process, potentially more efficient than the latter, thanks to the use of the Dutch 

auction mechanism. 

• Wit Capital follows a somewhat more standard strategy. It seeks to 

entice individual investors to bid in IPOs, but does not contribute in a major way 

to the price discovery mechanism. The latter is in large part operated by the 

lead managers of the IPOs in which Wit Capital participates. These lead 

managers, which are major investment banks such as Goldman Sachs, Morgan 

Stanley, or Merrill Lynch, determine the IPO price based on the traditional 

Book Building process, which is more focused toward large institutional 

investors. 

The overall diversity of IPO auction formats (summarized in Table 1) raises the 

following issues: 

• What is the optimal IPO mechanism in terms of expected proceeds, price 

discovery, and information elicitation from informed investors? How should IPO 

prices be set, in response to investors’ demand? Is the frequently used fixed price 

method optimal? 

• Or is the a priori appealing Dutch auction the optimal selling mechanism? 

• How do different auction-like IPO procedures, such as the Book Building, the 

Mise en Vente, and Dutch auctions compare? 

• How should Internet-based IPO auctions be designed? 

These questions are of interest to finance and economics scholars aiming 

to understand price formation and the workings of auctions. They are also very 

relevant in practice for investors, shareholders, and investment bankers, whose 

profits can be significantly affected by the nature and efficiency of the IPO 

mechanisms.


To address these issues, this paper develops a unified theoretical model to analyze 

the workings of the different IPO mechanisms listed above: the Book Building 

method, the fixed price auction, the Mise en Vente, and the uniform price market 

clearing auction. 

The participants in the IPO process are the sellers, financial intermediaries, and 

potential investors. In the model presented in Section 2 we assume the sellers 

seek to maximize the proceeds from the IPO, and the financial intermediary acts 

in their best interest. Some investors are large, strategic, institutional investors, 

with private information about the valuation of the stock in the secondary market. 

For simplicity, we assume that only the investors have private information, 

and abstract from the important problems arising when the sellers have private 

information (see, e.g., Allen and Faulhaber (1989), Grindblatt and Hwang (1989), 

Welch (1989), and Chemmanur (1993)). In addition to the large investors, there 

are smaller, and uninformed, but rational, investors. The funds available to these 

small investors are limited, hence they cannot absorb the whole issue. In Section 2, 

in the line of Benveniste and Spindt (1989), Benveniste and Wilhelm (1990), and 

Spatt and Srivastava (1991), we consider the optimal direct mechanism, and its 

implementation within the context of the Book Building method. 

In Section 3, we show that, in the fixed price auction, since prices cannot adjust to 

demand, winner’s curse problems, as in Rock (1986), lead to severe underpricing. 

Since the winner’s curse effect reflects the absence of adjustment of prices to 

demand it is natural to expect that the market clearing uniform price auction 

should perform better. Yet, we show that this auction can be conducive to tacit 

collusion between bidders, as in Wilson (1979), leading to large underpricing. This 

provides an alternative interpretation for the underpricing empirically evidenced 

by Kandel et al. (1997) in IPOs in Israel. In contrast, we show that the Mise en 

Vente can be structured to implement the optimal mechanism and to rule out tacit 

collusion, in contrast with the uniform price auction. In this auction, investors with 

good signals submit large demands, this drives prices up and thus enhances price 

discovery. 

In Section 4, we present empirical evidence from Mise en Vente auctions consistent 

with our theoretical result that it can implement the optimal mechanism, 

similar to the Book Building method. Hanley (1983) showed that, consistent with 

the implications from Benveniste and Spindt (1989) and Benveniste and Wilhelm 

(1990), prices somewhat underreact to demand; i.e., the covariance between price 

adjustment and underpricing is positive. This is also the case empiricaly in the 

Mise en Vente. Cornelli and Goldreich (1999) show empirically that, in the Book 

Building method, prices are set deliberatey below the market clearing level and 

that, anticipating this, investors inflate their demand. This also arises in the Mise 

en Vente. 

Conclusions emerging from our analysis are the following: 

• Efficient price discovery in IPOs requires some adjustment of prices to demand. 

Consequently, fixed price selling methods are inefficient. This is consistent


with the empirical finding by Loughran et al. (1994) that auction-like mechanisms 

lead to more efficient pricing than fixed price offers. 

• Yet, prices should not adjust to demand too strongly, lest this should spur tacit 

collusion. Consequently, the standard market-clearing uniform price (or Dutch) 

auction is not the optimal mechanism. In this auction, bidders can tacitly collude 

by placing demand functions such that the market clearing price is very low, 

and such that, any attempt to bid more aggressively, to gain market share, would 

push prices too high to be attractive. In the Mise en Vente, in contrast, since 

prices underreact to demand, tacit collusion on low prices can be unravelled. 

Indeed, underreaction implies that, if the other bidders were to bid at low prices, 

one investor could gain a large market share, without impacting the price too 

much. 

• In spite of obvious differences in institutional characteristics, two auctions, 

the Mise en Vente and the Book Building method, can be designed to implement 

the optimal IPO mechanism. From a theoretical perspective, it is not unnatural that 

different institutions can be used to implement the same optimal direct mechanism. 

From an empirical perspective, it is interesting that, consistent with our theoretical 

finding that the two institutions are comparable, data generated by the Book 

Building method in the United States or the United Kingdom and by the Mise en 

Vente in France, exhibit the same observable patterns, in particular underreaction 

of prices to demand and oversubscription. 

• This analysis has implications for the design of Internet-based IPO auctions. 

While the Dutch auction format proposed by Open IPO seems a priori attractive, 

our theoretical model shows that it can lead to tacit collusion on the part 

of bidders, and in that case it can be quite inefficient. In these collusive equilibria, 

the optimal strategy of the investors is to shade their bids rather than to 

“make a bid at the maximum price at which they are comfortable owning shares 

of the issue” as advised on Open IPO’s website. In fact, our analysis suggests 

that, in contrast with the Dutch auction, it can be optimal to let prices underreact 

to demand. Note that, in a recent IPO (Andover.net, Inc.), Open IPO actually 

set the IPO price at a significant discount relative to the market clearing 

price, more in line with the rules governing the book building or the Mise en 

Vente than with those of the Dutch auction. A challenge facing internet IPO auction 

designers is to translate into explicit computer algorithms the rather implicit 

rules that map demand into prices in the Mise en Vente or the Book Building 

method. 

2. MODEL 

There are S unseasoned shares for sale. The seller faces N large, strategic, 

institutional investors with private information about the valuation of the firm by 

the market and large bidding capacity, and a fringe of small, retail investors who 

are uninformed and cannot absorb the whole issue. All agents are rational and


risk neutral, and this is a common value auction. The objective of the seller is to 

maximize the proceeds from the sale. 

Each large investor can buy the whole issue and observes a private signal si, i = 

1,...N. The signals are identically and independently distributed and can be good 

(g), with probability π, or bad (b) with the complementary probability. The value v 

of the shares on the secondary market is increasing in the number of good signals n 

and its realization is denoted vn. 

The retail investors, as a whole, can purchase up to S(1 − k) shares, with k ∈ 

[0, 1]. 

The financial intermediary is assumed to act in the best interest of the seller. 

She is in contact with the large institutional investors, and she has a distribution 

network, collecting the orders from the retail investors. 

Consider the following direct mechanism. Each informed investor i sends a 

message mi ∈{g, b}. The mechanism maps these N messages into a price and 

into allocations to the informed agents and the retail uninformed agents. The 

mechanism is subject to several constraints. First, the price must be the same for 

all. This is to reflect the constraint, observed in practice, that IPO auctions involve 

uniform pricing (it should be noted, however, that Benveniste and Wilhelm 

(1990) show that investment bankers acting in the best interest of the firm could 

increase expected proceeds by using price discrimination). Second, since we assume 

the N large traders are ex ante identical, the mechanism is symmetric. Hence 

the price is simply a function of the total number of investors who report good 

signals ˆn, and is correspondingly denoted p(ˆn), while the quantity allocated to informed 

agent i depends only on her message mi and the number of other informed 

agents who reported good signals, li. Correspondingly it is denoted q(mi; li). Similarly, 

the quantity allocated to the uninformed agents depends only on ˆn, and 

it is denoted qu(ˆn). Third, the allocation must be such that exactly S shares are 

sold. 

∀{mi}i=1,....N , ˆn ∈{0,...N}, 

N 

q(mi; li) + qu(ˆn) = S. 

The mechanism opens the possibility to allocate different quantities to investors 

reporting different signals. Indeed, quantity discrimination is crucial to obtain 

information revelation from the investors. 

The program of the mechanism designer is to maximize expected proceeds 

i=1 

Maxqi (.;.),qu(..),p(.)E(Sp(ˆn)) 

under the incentive compatibility and participation constraints of the investors. The 

incentive compatibility constraint of the informed investor i is that she must be better 

off announcing her true signal than misreporting it, while rationally anticipating


that the others will truthfully report their own signals. When the investor has observed 

a good signal this amounts to 

N−1 

N−1 

πlq(g; l)(vl+1 − p(l + 1)) ≥ πlq(b; l)(vl+1 − p(l)), 

l=0 

where πl is the probability, from the point of view of the informed investor, that l 

out the N − 1 other investors have a good signal. 

We impose the rationality condition in its most demanding form. Investors must 

still be willing to participate to the mechanism ex post, i.e., after the messages of 

all the agents are known. This implies that the price set in the optimal mechanism 

must be lower than or equal to the value of the shares: p(n) ≤ vn. 

This problem is similar to the problem analyzed by Benveniste and Spindt (1989) 

and Benveniste and Wilhelm (1990). However, there are three differences. First 

and most importantly, in the present paper, the uninformed agent participates in 

the direct mechanism, along with the informed agents; the empirical analysis of 

the book-building process by Cornelli and Goldreich (1998) is consistent with 

this view. Considering the game in which both informed and uninformed agents 

participate enables us to nest in our analysis the study of winner’s curse effects as 

in Rock (1986) (see the analysis of the fixed price sale in the next section). Second, 

we do not impose the additive form used in Benveniste and Spindt (1989), where 

the value of the share is proportional to the number of good signals, which would 

imply, in our context that vn = αn, where α is a constant. Third, in contrast with 

Benveniste and Spindt (1989), we assume that each large investor could buy the 

whole issue. We think this is a reasonable assumption, given the bidding power 

of the large financial institutions participating regularly to IPOs, compared to the 

relatively small size of most of these operations. In addition this assumption simplifies 

the analysis. We discuss below how changing this assumption would alter our 

results. 

The optimal mechanism is given in the next proposition, with the proof of this 

proposition, as well as the following propositions, given in the Appendix. 

PROPOSITION 1. The optimal direct mechanism has the following characteristics: 

• If all informed investors report a bad signal, the IPO price is equal to the 

value of the shares: v0, the amount allocated to the retail investors is maximized, 

by setting qu(0) = S(1 − k), and the shares which cannot be sold to the retail 

investors are equally split between the informed investors: q(0; 0) = Sk 

N . 

• If there is at least one informed investor reporting a good signal, informed 

investors reporting a bad signal receive no shares, i.e., q(0, ˆn) = 0. 

• When some informed investors announce good signals, there is underpricing, 

and correspondingly expected proceeds are lower than the expected value of the 

l=0


shares: 

E(p(n)) = E(vn) − kπ(1 − π) N−1 (v1 − v0). 

• The optimal mechanism can be implemented with the following price schedule: 

p(n) = vn, ∀n < N, 

 

1 − π 

p(N) = vN − k 

π 

N 

(v1 − p(0)). 

The proposition has a simple intuition. The mechanism designer must ensure 

that investors with a good signal announce their information truthfully rather 

than pretending they have a bad signal. To makes misrepresentation unattractive, 

the optimal mechanism minimizes the amount allocated to investors who 

announce bad information. This implies setting this amount equal to 0, except 

when it is not possible, because all informed investors announce bad signals. 

In that situation it is not possible to exclude all the informed agents, because 

the retail investors cannot absorb the whole issue. Hence underpricing must 

be used, in addition to quantity discrimination, to induce truthful revelation. 

This gives rise to informational rents for the large investors. The corresponding 

wedge between the expected proceeds and the expected value of the shares 

is proportional to the amount which the uninformed retail investors cannot buy 

(kS). Indeed, if the uninformed retail investors could buy all the shares, allocating 

them the whole issue would be a simple way to avoid adverse selection 

and sell all the shares at their a priori expected value, thus eliminating 

underpricing. 

Note that, as in Rock (1986), a winner’s curse problem, arises for the uninformed 

investors in the optimal mechanism, as the amount they are allocated is 

maximízed when the the value of the stock is lowest. Yet, they are still willing 

to participate to the auction, because the mechanism is designed to satisfy their 

individual rationality constraint. 

Next we discuss the extent to which our results are robust to the informational 

requirements of our approach: 

• In contrast with Allen and Faulhaber (1989), Welch (1989) or Chemmanur 

(1993), we do not assume that corporate insiders selling their shares in the IPO have 

private information about the market value of the stock. While clearly important 

and interesting, the case where there is two-way information asymmetry, i.e., both 

the sellers and the buyers have private signals, is beyond the scope of the present 

paper. Note that Chemmanur (1993) analyzes two-way information asymmetry, in 

the context of fixed-price offers. 

• In our framework, it is possible to exclude investors who report bad signals, 

except when all of them do so. This directly reflects our assumption that each large


investor has the potential to absorb the whole issue. If instead we assumed, like 

Benveniste and Spindt (1989) that the bidding capacity of the informed investors 

was below S, the threat to be excluded from the allocation would be less strong. 

Correspondingly, quantity discrimination would be a less powerful tool, and it 

would be necessary to rely on underpricing to a larger extent. In that context, the 

optimal price schedule would entail underpricing in several states, as in Benveniste 

and Spindt (1989). 

• In our model, underpricing is decreasing in the number of bidders, and the 

outcome of the mechanism goes to the competitive outcome (no underpricing) as 

the number of bidders goes to infinity. Note, however, that it would not be very 

reasonable to assume infinitely many bidders in our framework. In practice, there 

is only a limited number of professional investors who, like the large traders we 

consider in the model, have private information about the value of the shares and 

have the capacity to absorb the whole issue. 

With the pricing schedule presented in Proposition 1, underpricing arises when 

the IPO price is high. This suggests that underpricing and IPO prices are likely to 

be positively correlated. Now, with this pricing schedule, the covariance between 

underpricing and IPO prices cov(v − p, p) simplifies to 

This is positive if 

π N (1 − π N )(vN − p(N))(p(N) − E(v | b)). 

E(v) − E(v | b)) > kπ(1 − π) N (v1 − v0), 

which is likely to hold, especially when k is relatively low. This positive covariance 

can be interpreted in terms of underreaction of prices to demand. Note that, if 

no large investor could absorb the whole issue, and correspondingly there was 

underpricing in more states of the world, as in Benveniste and Spindt (1989), 

underreaction would also arise. 

Benveniste and Spindt (1989) and Benveniste and Wilhelm (1990) provide an 

interpretation of the Book Building method along the lines of this type of optimal 

mechanism. The indications of interest transmitted by investors to the investment 

bank are similar to messages about signals, and their reflection in the price adustment 

and discretionary allocation set by the intermediary are similar to the direct 

mechanism. Consistent with this theory, Hanley (1993) found positive correlation 

between price adjustment and underpricing in Book Building data. 

3. THEORETICAL ANALYSIS OF FIXED PRICE OFFERS, MARKET 

CLEARING AUCTIONS, AND MISES EN VENTE 

3.1. Fixed Price Auction 

Our analysis in this section is similar to Rock (1986). The differences are the 

following. First, unlike Rock (1986), we do not impose the condition that informed


investors do not have enough funds to buy the whole IPO. This is more realistic, 

given the relatively small size of IPO issues, compared to the large bidding power 

of institutional investors. Second, we consider N informed investors, with different 

and imperfect signals, rather than a single, perfectly informed investor. 

In the case of fixed price offers, the only choice of the seller is to set the price, p. 

Since the uninformed agents cannot absorb the whole issue, and since the seller 

must sell the S shares, he must ensure that the informed agents are willing to bid 

for the shares, even when they have observed bad signals. Hence, the price must 

be set to satisfy the individual rationality constraint of the informed agent with a 

bad signal. 

We assume that informed investors can costlessly bid for up to S shares. If they 

want to bid for a larger amount, up to ¯Q > S, they incur cost c. As only S shares 

are for sale, such very large bids are expected not to be fully executed. They can 

be optimal, however, to the extent that they enable the investor to obtain a larger 

share of underpriced and overbid issues. The cost c can be thought of as the cost 

of immobilizing funds during the period of the IPO (Keloharju (1993) notes that 

in Finland this period can be quite long). 

Consider the candidate equilibrium where investors with good signals bid for 

a large amount ( ¯Q), while investors with a bad signal bid for a lower amount (S) 

and retail investors also participate to the IPO. In this context, the execution rate 

when there are n good signals is 

S 

τn = 

S(1 − k + N − n) + n ¯Q . 

Setting the expected gain of the informed with a bad signal bidding for S shares 

to 0 

E(Sτ(v − p) | b) = 0, 

pins down the IPO price. Correspondingly, we obtain the following proposition: 

PROPOSITION 2. If K1 ≤ c ≤ K2 (where K1 and K2 are constants defined in 

the proof ), then in the fixed price offer the highest possible IPO price is 

where, 

N−1 

p = λlv(l), 

λl = 

l=0 

πlτl 

N−1 l=0 πlτl 

, 

and the informed agent with a good signal bids for ¯Q, while the informed agent 

with a bad signal bids for S, and the uninformed agent bids for S(1 − k).


First note that consistent with empirical evidence (Koh and Walter (1989), Levis 

(1990), Keloharju (1993)) in the equilibrium described in Proposition 2, demand is 

positively correlated with underpricing. Indeed the latter is equal to vn − p, while 

the former is equal to: S(1 − k + N − n) + nQ, so that both are increasing in n. 

Second, manipulating the 0 profit condition of the informed investors with a bad 

signal, the IPO price can be expressed as 

cov(τ,v − p | b) 

p = E(v | b) + . 

E(τ | b) 

As the execution rate is decreasing in the number of good signals (n), the covariance 

is negative. Hence, the IPO price is lower than the expectation of the value of the 

asset conditional on a bad signal (E(v | b)). Underpricing pricing is necessary to 

convince the investors with bad signals to participate to the offer, in spite of the 

winner’s curse problem they face (in the same spirit as in Rock (1986)). Indeed 

they obtain worse execution when the share is worth a lot, and many investors with 

good signals place large bids, resulting in low execution rates. 

Further note that the expected profit of the uninformed agent is greater than that 

of the investors with bad signals: 

E(τ(v − p)) > E(τ(v − p) | b) = 0. 

Hence retail investors earn positive expected profits in the fixed price offer. 

These results emphasize that the lack of adjustment of prices to demand leads to 

large rents, left both to the informed and the uninformed agents, and consequently 

large underpricing. 

3.2. Uniform Price Walrasian Auction 

In this mechanism, the seller sets a reservation price p, the investors submit 

demand functions, and the IPO price is set to equate supply ¯ and demand. In this 

market clearing uniform price auction, as in the analyses of Wilson (1979) and 

Back and Zender (1993), there is scope for tacit collusion between investors, as 

stated in the next proposition: 

PROPOSITION 3. For any reservation price p ≥ E(v | b), there exists a 

Bayesian Nash equilibrium where investors’ demands ¯ are constant whatever the 

realization of the signals, and the resulting IPO price is equal to the reservation 

price. The equilibrium demand of each investor is, at price p, 

⎧ 

S ⎨ − σ (p − p 

N + 1 

¯ ) 

⎩ with σ ≤ 

1 

N(N + 1) 

S 

E(v | g) − p 

¯ 

The intuition for this result is the following. The demand functions have a relativelly 

small slope (σ ). Hence the residual supply function faced by each investor 

.


is rather inelastic: It takes a big price increase to increase the residual supply. This 

large price impact makes it unattractive for each investor to attempt to increase 

her purchases. Our theoretical model provides an alternative interpretation for the 

thought-provoking empirical findings of Kandel et al. (1997) on the uniform price, 

market clearing IPO mechanism used in Israel. In particular, Kandel et al. (1997) 

find that (i) there is significant underpricing, and (ii) the (absolute value of the) 

slope of the demand schedules is low, i.e., there is a flat, around the IPO price. 

This is consistent with our theoretical result that the slope of the demand curve σ 

must be low in the tacit-collusion Bayes-Nash equilibrium. 

Because of the strategic complementarities between the actions of the bidders 

in this auction, there exist multiple equilibria, some of which do not involve tacit 

collusion. Yet, it is likely that the bidders will focus on the tacit collusion Nash 

equilibrium presented in the proposition, since it is the most advantageous for 

them. 

To cope with tacit collusion within this mechanism while satisfying the individual 

rationality condition of the informed investor with a bad signal, it is best for 

the seller to set p ¯ to E(v | b). 

To conclude this subsection, note that although underpricing is less severe in this 

auction than in the fixed price offer, it is still quite significant, due the possibility 

of tacit collusion it offers to the bidders. 

3.3. The Mise en Vente 

The Mise en Vente is an auction-like IPO procedure commonly used in France. 

It operates as follows. Five days prior to the IPO the quantity offered and the 

reservation price are set jointly by the bank, the broker, and the firm. On the 

day of the IPO, investors submit limit orders to their brokers. The latter transmit 

these orders to the stock exchange. The total demand function is computed 

and graphically plotted by the auctioneer, who is a Bourse official. As a function 

of this demand, the auctioneer sets the IPO price. As in the Book Building 

method, there is no formal explicit algorithm mapping demand into prices. But 

price adjustment in the Mise en Vente exhibits strong empirical regularities, as 

shown in the next section. Eligible orders, above the IPO price, obtain prorata 

execution. 

To illustrate this description, consider the Mise en Vente of Partouche. On March 

29, 1995, 500,000 shares were offered. The reservation price was 185. The total 

demand, expressed at all prices, amounted to 8.4 million shares, i.e., 16.29 times 

the supply. Figure 1 plots the demand expressed at each price. The IPO price was 

set to 200, which corresponds to a percentage price adjustment of 8.1%. (Note 

that the price at which supply would have been equal to demand was 220, i.e., 

the IPO price was deliberately set below market clearing). Eligible orders, placed 

above 200, obtained prorata execution. The first secondary market price, set after a 

tâtonnement process which lasted two days, was equal to 215, which corresponds 

to 7.5% underpricing.


FIG. 1. Buy orders placed at the different prices for the Mise en Vente of Partouche, March 29, 1995.


Denote D(p) the cumulated demand stemming from limit orders placed at prices 

equal to or higher than p. The optimal Mise en Vente arising in our framework is 

described in the next proposition: 

PROPOSITION 4. If 

N−1 N − 1 

c < k(1 − π) 

N S 

¯Q − S 

(N − 1) ¯Q + S ′ 

the optimal mechanism can be implemented with a Mise en Vente where (i) the reservation 

price is v0,(ii) investors place limit orders at prices p ∈{v0,v1,...,vN−1, 

pN }, (iii) the price schedule is 

if D(pN ) < S, then p = v0, while if D(pN ) ≥ S, 

 

then p = max p D(p) [ N ] +, min{p, s.t., D(p) = D(pN 

 

)} , 

(where [.] + means that if the number within brackets is not an integer it is rounded 

up to the next integer), (iv) the equilibrium strategies of the investors are to demand 

Q shares at price pn for investors with good signals, to demand S shares at price 

v0 for investors with bad signals, and to demand S(1 − k) shares at price v0 for 

retail investors. 

In the optimal Mise en Vente, consistent with the workings of the actual mechanism, 

prices increase with total demand, as the latter is equal to 

n ¯Q + (N − n + 1 − k)S. 

In equilibrium, in the optimal Mise en Vente, investors with good signals place 

more aggressive demands, as they are more eager to purchase the shares. Consequently, 

the higher the value of the asset, the better the private signals, the higher 

the demand, and the higher the IPO price. This theoretical result is consistent with 

the empirical findings by Derrien and Womack (1999) that this auction-like IPO 

method efficiently incorporates market information into IPO prices. 

Yet, the price set in this mechanism does not clear market in order to satisfy 

the incentive compatibility constraint. Correspondingly, there is oversubscription 

at the IPO price. 

Our analysis suggests that the Mise en Vente and the Book Building methods 

have similar incentive properties and can reach similar outcomes. This contrasts 

with the discussion in Benveniste and Wilhelm (1990) that, with uniform prices 

and even-handed allocations, information revelation should be impossible. The 

point is that, in the Mise en Vente, while the pro-rata allocation rule is indeed 

even-handed, it leads to investors with different signals being treated differently 

because they have placed different bids.


Consistent with our theoretical result, a recent empirical study of the Book Building 

method in the United Kingdom, by Cornelli and Goldreich (1998), shows that 

in this IPO institution: (i) the IPO price is deliberately set below market clearing, 

so that there is oversubscription at the IPO price, (ii) good deals are underpriced, 

and (iii) rationally anticipating this, investors inflate their demand and apply for 

more shares than they actually desire to buy. All these features are exhibited in our 

theoretical model of the Mise en Vente. This highlights that, in spite of institutional 

differences, Book Building and Mise en Vente can have similar properties. 

In the uniform price market clearing auction, there exists a tacit collusion Nash 

equilibrium whereby the bidders place demands such that the IPO price is always 

equal to the reservation price. The issue arises, therefore, if such tacit collusion 

equilibria exist in the Mise en Vente. The following proposition states that it is not 

the case. 

PROPOSITION 5. If 

E(v | g) − v1 > 

1 

(E(v | g) − v0), 

N + 1 − k 

then tacit collusion (such that the IPO price is equal to the reservation price 

irrespective of the signal) is not a Bayesian Nash equilibrium in the optimal Mise 

en Vente. 

In contrast with the case of the market clearing uniform price auction, tacit 

collusion can be unravelled in the case of the Mise en Vente. This is because in the 

Mise en Vente prices respond less strongly to demand than in the market clearing 

case. This is conducive to outbidding, since the investors can increase their market 

share, by raising their demand, without affecting the price too much. 

The condition stated in Proposition 5 is not very demanding. For example, in the 

linear parametrization assumed in Benveniste and Spindt (1989), where vn = αn, 

the condition holds. 

4. EMPIRICAL ANALYSIS OF THE MISE EN VENTE 

To assess the empirical relevance of our theoretical analysis we confront it to a 

sample of 92 Mises en Vente which took place between 1983 and 1996. Our data 

corresponds to firms listed on the “Second Marché” an intermediary tier of the 

stock market created in France in 1983 for growth companies and for which the 

listing requirements are less stringent than for the first tier (the “Cote Officielle” 

or Official List). Practically all IPOs between 1983 and 1996 have taken place 

on the “Second Marché” (only a few exceptions, including privatizations, are on 

the Official List). This contrasts with the United Kingdom where IPOs are more 

frequently on the Official List than on the Unlisted Securities Market (see Levis 

(1990)). In Finland, there are IPOs on the Helsinki Stock Exchange or on the


TABLE 2 

Summary Statistics on 92 Mises en Ventes, 1983–1996 

Variable Average Standard deviation 

Underpricing = 

ln(stock market 

clearing price/IPO price) 

13% 16.52% 

ln( 

Total demand 

Supply 

) 55 74 

Supply (number of shares) 159262 141401 

Price adjustment = 

ln(IPO price/ 

reservation price) 

17.36% 10.66% 

Sales year before IPO∗ FF 635, 805, 979 1, 377, 289, 794 

Age at time of IPO∗ 28.32 21.7 

∗ Statistics based on 68 observations between 1983 and 1994. 

OTC market (see Keloharju (1993)). In 1996, an additional tier of the French 

equity market, the “Nouveau Marché,” was created. It aims at attracting younger 

companies to the Bourse. Because the companies listing on this market are quite 

different from those listing on the “Second Marché” they are not included in the 

present analysis. 

For the IPOs in our sample we observe: 

• the IPO price, the reservation price, and the secondary market clearing price, 

• the number of shares sold, 

• the total number of shares demanded, 

• the age of the firm at the time of IPO, and the sales during the year prior to 

IPO (these variables were available only for the period up to 1994). 

Table 2 reports summary statistics on these variables. In particular, note that the 

firms going public in France are relatively older than their U.S. counterparts (a 

feature shared with firms going public in other European countries). Note also that 

underpricing is on average equal to 13%, a figure very similar to those observed in 

the United States in the context of the Book Building procedure, while on average 

the price adjustment is 17.36%. 

Our theoretical analysis implies that the adjustment of the IPO price over the 

reservation price should increase with total demand. To test this hypothesis, we 

regressed price adjustment on the strength of demand and estimated the following 

regression 

ln(Pj/R j) = a + b ln(D j/S j) + e j, 

where Pj is the price of IPO j, R j is the initial reservation price for this IPO, 

D j is the total demand (i.e., sum of the quantities of all the orders placed at 

all prices in this IPO) and S j is the number of shares sold. The results are in 

Table 3. The first column in Table 3 presents the simple OLS results, for which 

the slope is significantly positive. The second and third columns present estimates


TABLE 3 

IPO price 

Regression of Price Adjustment (ln( reservation price )) on Demand and Control 

Variables (t Statistics Are in Parentheses) 

Sample period 1983–1996 1983–1996 1983–1994 ∗ 

Number of observations 92 92 68 

Estimation method OLS White correction 

for heteroschedasticity 

OLS 

Constant −0.027 −0.03 −0.1 

(−1.47) (−1.88) (−0.79) 

ln ( 


Supply 

) 0.061 0.053 0.06 

(11.79) (72.8) (12.1) 

ln (sales year before IPO) — — 0.0008 

(0.13) 

ln (age at time of IPO) — — 0.01 

(1.77) 


obtained after correcting for heteroskedasticity, using the White adjustment, and 

after controlling for exogenous variables such as the age of the firm and the level of 

its sales. The estimates obtained in these regressions are similar to those obtained 

in the simplest version of the test, and the coefficient of total sales is significantly 

positive in the three specifications. Figure 2 illustrates this analysis by plotting 

price adjustment (measured as the logarithm of the ratio of the IPO price to the 

initial reservation price) against total demand (measured as the logarithm of the 

ratio of total demand to supply). 

Our maintained hypothesis is that the Mise en Vente implements the optimal 

mechanism, like the Book Building method. Under this hypothesis, it should exhibit 

empirical regularities which are characteristic of this mechanism, and which 

are also observed in the Book Building method. One such empirical regularity is 

the underadjustment of prices to demand, which manifests itself in positive covariance 

between price adjustment and underpricing, and which was documented 

empirically in the case of the Book Building method by Hanley (1993). To test 

this hypothesis, we regressed underpricing on price adjustment, as 

ln(v j/Pj) = a + b ln(Pj/R j) + e j, 

where v j is the first market clearing price after the IPO, Pj is the price of 

IPO j, and R j is the initial reservation price for this IPO. The results are in 

Table 4. As in the previous regression we estimated a simple OLS specification, as 

well as two other specifications, one correcting for heteroskedasticity and the other 

controlling for age and sales. Consistent with the underadjustment hypothesis, the 

slope is significantly positive, in all three specifications. Figure 3 illustrates this 

analysis by plotting underpricing (measured as the logarithm of the ratio of the 

first market clearing price to the IPO price) against price adjustment.


FIG. 2. OLS regression of price adjustment on strength of demand, 92 Mises en Vente, 1983–1996.


FIG. 3. OLS regression of underpricing on price adjustment, 92 Mises en Vente, 1983–1996.


TABLE 4 

stock market clearing price 

Regression of Underpricing (ln ( IPO price )) on Price Adjustment and 

Control Variables (t Statistics Are in Parentheses) 

Sample period 1983–1996 1983–1996 1983–1994 ∗ 

Number of observations 92 92 68 

Estimation method OLS White correction for 

heteroschedasticity 

OLS 

Constant −0.03 −0.5 0.32 

(−1.15) (−3.28) (1.04) 

IPO price 

ln ( reservation price ) 0.91 0.77 0.97 

(6.92) (80.3) (3.2) 

ln (sales year before IPO) — — −0.01 

(−0.87) 

ln (age at time of IPO) — — −0.03 

(−1.7) 

ln ( 


Supply 

) — — −0.00024 

(−0.009) 


5. CONCLUSION 

Our analysis suggests that it is important to organize IPO auctions so that 

the IPO price reflects the information held by investors. If this is not the case, 

as in fixed price offers, underpricing is bound to be large and very little information 

can be generated about the value of the stock during the IPO process. 

Yet, our analysis suggests that the optimal auction may not be the (a priori natural) 

Walrasian uniform price auction. In such an auction, the strong reaction 

of prices to demand can lead to tacit collusion between bidders, as in Wilson 

(1979), which leads to large underpricing. For optimal information elicitation 

to be immune to tacit collusion, some form of underadjustment of prices to 

the informational content of demand is required. Such information elicitation 

can be achieved in similar ways by apparently very different institutions: the 

Book Building method used in the United States and the Mise en Vente used in 

France. 

While our analysis suggests that the Dutch auction used by Open IPO may not 

be optimal, it raises—but does not resolve—the issue how to translate into explicit 

computerizable rules the mapping of demand into prices that occurs in the Mise 

en Vente or the Book Building. 

While the present paper emphasizes the similarities between the Book Building 

method and the Mise en Vente auction, there are some important potential differences 

between the two systems. In the Mise en Vente, bids are anonymous, while 

in the Book Building the investment banker observes (and has entire discretion to 

condition on) the identity of the investors sending indications of interest. Lack of


investor’s anonymity and discretionary allocation in the Book Building can have 

positive consequences, as they can be used to enhance the ability to extract information 

from the bidders. Indeed, Benveniste and Spindt (1989) analyze how long 

term nonanonymous relationship can be used efficiently in the IPO process, while 

Sherman (1999) analyzes the superiority of the book building over auction mechanisms 

(see also Sherman (2000)). On the other hand, if the investment banker is not 

acting in the best interest of the seller, discretionary allocations can have negative 

consequences. In particular, they can worsen winner’s curse problems for retail 

investors and consequently reduce their participation in auctions. In this context, 

the anonymity and nondiscretionary rules used in auctions can be attractive. This 

may well be why Open IPO insists that its Dutch auction mecanism “levels the 

playing field” and “ensures that all bidders are on equal footing.” Mechanisms other 

than the Dutch auction could potentially be used to “level the playing field.” Biais 

et al. (2002) analyzed the case where the investment bank and the institutional 

investors can collude (so that the investment bankers are tempted to treat large 

institutional investors more favorably than retail investors). They showed theoretically 

and econometrically that the Mise en Vente can be an efficient mechanism 

in this context. 

Wilhelm (1999) discussed that, while traditional investment banking was 

based on relationships with a small number of large investors, Internet technology 

could potentially allow one to sell unseasoned shares to a large number of 

relatively small investors, with no or litttle relationship with the investment bank. 

An interesting avenue of further research could be to investigate the consequences 

of this evolution for the optimal pricing and allocation of IPOs. In particular, 

it would be interesting to analyze price discovery, information elicitation, and 

strategic issues in the context of Internet–based sales to a large diffuse investor 

base. 

APPENDIX: PROOFS 

Proof of Proposition 1. As is typical in such two-type mechanism design problems, 

the incentive compatibility condition of the informed investor with bad news 

is redundant, and only the incentive compatibility condition of the informed agent 

with a good signal is binding. 

The constraint that all shares be sold is 

∀l = 0,...N − 1, (l + 1)q(g; l) + (N − l − 1)q(b; l + 1) + qu(l + 1) = S, 

which can be rewritten as 

∀l, q(g; l) = S − qu(l + 1) − (N − (l + 1))q(b; l + 1) 

. 

l + 1


Substituting this value of q(g; l) in the incentive compatibility condition becomes 

N−1 

l=0 

πl 

S − qu(l + 1) − (N − (l + 1))q(b; l + 1) 

(vl+1 − p(l + 1)) 

l + 1 

N−1 

≥ πlq(b; l)(vl+1 − p(l)). 

l=0 

To relax this condition, minimize qu(l + 1), for l = 0,...N − 1, by setting it 

equal to 0, and minimize q(b; l), l = 0,...N, by setting: q(b; l) = 0, for l > 0, 

and q(b;0)= Sk 

. Thus the incentive compatibility condition simplifies to 

N 

N−1 

l=0 

πl 

S 

l + 1 (vl+1 

Sk 

− p(l + 1) ≥ π0 

N (v1 − p(0)). 

Treating this constraint as an equality, p(N) can be written as a function of the 

other prices 

πN−1 p(N) = πN−1vN + 

N−2 

l=0 

− π0k(v1 − p(0)). 

N πl 

l + 1 (vl+1 − p(l + 1)) 

Now, the objective of the mechanism designer is to maximize (under the incentive 

compatibility and individual rationality conditions) the expected proceeds, which 

can be written as 

N−1 

n=0 

N−2 

µn p(n) = µN p(N) + 

 

µn p(n), 

where µn denotes the probability that n signals out of N are good. Noting that µN = 

ππN , and substituting the incentive compatibility condition into the objective, the 

latter becomes 

π 

 

πN−1vN + 

N−1 

+ 

n=1 

N−2 

l=0 

µn p(n) + µ0 p(0). 

 

N πl 

l + 1 vl+1 

N−2 

− 

l=0 

n=0 

N πl 

l + 1 p(l + 1) − π0k(v1 − p(0)) 

Noting that µn+1 = ππn N 

, and that because of the participation constraint: 

n+1

p(0) = v0, this can be rewritten as 

 

N−1 

µN vN + 


 

N−2 

µnvn − µn+1 p(n + 1) − ππ0k(v1 − v0) 

n=1 

n=0 

N−2 

+ µn+1 p(n + 1) + µ0v0. 

n=0 

Noting that π0 = (1 − π) N−1 , the expected proceeds are equal to 

E(vn) − kπ(1 − π) N−1 (v1 − v0). 

Note that prices do not appear in this expression. Hence, prices are indeterminate, 

as long as the incentive compatibility condition is satisfied. One possible solution 

is to set 

and 

p(l) = vl, ∀l = 1,...,N − 1, 

 

1 − π 

p(N) = vN − 

π 

N−1 

k(v1 − v0). 

Note that, for this solution, the quantity allocated to the retail investors qu(n), n = 

1,...N − 1, is no longer relevant since it is multiplied by 0 in the incentive 

compatibility condition. Thus, for the price solution above, the optimal mechanism 

does not require that the retail investors receive 0 shares for vn, n = 1,... 

N − 1. 

Proof of Proposition 2. This participation constraint of the informed investor 

with a bad signal, E(Sτ(v − p) | b) = 0, can be rewritten more explicitly as 

N−1 

πl[v(l − p]τl = 0. 

l=0 

Hence, the IPO price can be written as 

p = 

N−1 

l=0 

πlτl 

N−1 l=0 πlτl 

vl = 

N−1 

λlvl. 

l=0


The investor with a bad signal is better off bidding for S shares than for ¯Q if 

c > ¯Q 

N−1 

 

 

S 

πl[v(l) − p] 

. 

S(1 − k + N − (l + 1)) + (l + 1) ¯Q 

l=0 

Denote K1 the right-hand side of this inequality. 

Now consider the informed investor with a good signal. She is better off bidding 

for ¯Q than for S shares if 

That is, if 

N−1 

 

 

¯Q 

S 

πl[vl+1 − p] 

− c 

S(1 − k + N − (l + 1)) + (l + 1) ¯Q 

l=0 

 

N−1 

S 

> S πl[vl+1 − p] 

. 

S(1 − k + N − l) + (l) ¯Q 

l=0 

N−1 

πl[vl+1 − p]S 

l=0 

 

¯Q 

× 

S(1 − k + N − l) + l ¯Q + ¯Q − 

 

S 

> c. 

S(1 − k + N − l) + l ¯Q + S 

Denote K2 the left-hand side of the inequality. Note that it is indeed positive, 

since 

¯Q 

S(1 − k + N − l) + l ¯Q + ¯Q > 

S 

S(1 − k + N − l) + l ¯Q + S . 

Proof of Proposition 3. To establish that the strategies stated in the proposition 

form an equilibrium, we need to prove that the investor with a good signal, anticipating 

that the other investors follow the equilibrium strategy, prefers to purchase 

S/(N + 1) shares at price p ¯ , rather than bidding more aggressively, to increase her 

market share. Indeed, if she does not want to do so, then a fortiori, the uninformed 

investor or the informed investor with bad news do not want to undercut, while 

they are still willing to buy a constant amount at p ¯ . 

Anticipating that the other investors follow their equilibrium strategies, she faces 

the residual supply curve: 

 

S 

S − N 

N + 1 − σ (p − p ¯ ) 

 

.


Her task is to choose the price p which maximizes her expected profit, (p), 

where 

 

S 

(p) = + Nσ (p − p) (E(v | g) − p), 

N + 1 

which is equal to the product of the residual supply curve by the unit profit. To 

prove that she finds it optimal to purchase S/(N + 1) shares at price p ¯ , we need to 

show that this is decreasing for all prices above p ¯ .Now 

∂(p) 

p 

 

S 

= Nσ (E(v | g) − p) − + Nσ (p − p) 

N + 1 

is decreasing in p. Hence, to show that it is negative for all prices larger than or 

equal to p ¯ , we only need to show that it is negative for p ¯ , i.e., 

that is 

 

S 

Nσ (E(v | g) − p) − < 0, 

¯ N + 1 

σ< 

1 

N(N + 1) 

S 

E(v | g) − p ¯ 

Proof of Proposition 4. First, consider the case of the informed investor with 

a good signal. Her equilibrium expected gain is 

π N−1 (vn − p) S 

− c. 

N 

Could she obtain more by deviating from her equilibrium strategy? First, suppose 

she demands a lower amount q, still at price pn. Ifq > S, her expected gain is 

strictly lower than in equilibrium, since she just obtains less shares. If q ≤ S, then 

her expected gain is 

π N−1 S 

(vn − p)S 

(N − 1) ¯Q + S ′ 

which is lower than her equilibrium gain if 

π N−1 

N − 1 ( ¯Q 

 

− S) 

(vn − p)S 

N (N − 1) ¯Q + S 

. 

> c. 

Second, suppose she places a bid at a lower price than pn, say P.IfP < pn−1, the 

IPO price is pn−1, while if P ≥ pn−1, then the IPO price is above P. In both cases 

she obtains 0 shares.


The retail investors and the informed investor with a bad signal obtain 0-expected 

gains in equilibrium and it is straightforward to see that they cannot obtain positive 

profits by deviating. 

Proof of Proposition 5. Consider a candidate equilibrium, whereby tacit collusion 

would prevail, and in which the IPO price would always equal v0. In such 

an equilibrium the investors would bid as much as possible while not pushing the 

price above v0 and still deterring the other investor from competing away market 

shares. To avoid pushing the price above v0, they place bids for (slightly less than) 

S 

N shares at pN and for S(1 − 1/N) atv0. The expected profit from such tacit 

collusion after observing a good signal is 

S 

[E(v | g) − v0]. 

N + 1 − k 

If, she expects the others to follow this strategy, the informed investor placing a 

bid for S shares at p1 = v1 expects to gain 

S[E(v | g) − v1]. 

Hence, she prefers to follow that strategy rather than to implicitly collude if 

E(v | g) − v1 > 

1 

[E(v | g) − v0]. 

N + 1 − k 

REFERENCES 

Allen, F., and Faulhaber, G. (1989). Signaling by underpricing in the IPO market, J. Finan. Econ. 23, 

303–323. 

Beatty, R. P., and Ritter, J. (1986). Investment banking, reputation and the underpricing of initial public 

offerings, J. Finan. Econ. 15, 213–232. 

Belletante, B., and Paliard, R. (1993). Does knowing who sells matter in IPO pricing: The French 

Second Market Experience, Cah. Lyon. Rech. Gestion 14, 42–74. 

Benveniste, L., and Spindt, P. (1989). How investment bankers determine the offer price and allocation 

of new issues, J. Finan. Econ. 24, 343–361. 

Benveniste, L., and Wilhelm, W. (1990). A comparative analysis of IPO proceeds under alternative 

regulatory environments, J. Finan. Econ. 28, 173–207. 

Benveniste, L., and Wilhelm, W. (1997). Initial public offerings: Going by the boook, J. Appl. Corp. 

Finan., Spring. 

Biais, B., Bossaerts, P., and Rochet, J. C. (2002). An optimal IPO mechanism, Rev. Econ. Stud., 

forthcoming. 

Brennan, M., and Franks, J. (1995). Underpricing, ownership and control in IPO of equity securities 

in the UK, mimeo, London Business School. 

Chemmanur, T. (1993). The pricing of IPOs: A dynamic model with information production, J. Finance 

48(1), 285–304.


Cornelli, F., and Goldreich, D. (1998). Book building and strategic allocation, working paper, London 

Business School. 

Derrien, F., and Womack, K. (1999). Auctions versus Book Building and the control of underpricing 

in hot IPO markets, Working paper, Dartmouth College. 

Dubois, M. (1989). Les entreprises qui s’introduisent en Bourse sont-elles sous évaluées? J. Soc. Stat. 

Paris 130(1), 4–616. 

Grinblatt, M., and Hwang, C. (1989). Signalling and the pricing of new issues, J. Finance 44(2), 

393–420. 

Hanley, K. (1993). The underpricing of initial public offerings and the partial adjustment phenomenon, 

J. Finan. Econ. 231–250. 

Hanley, K., and Wilhelm, W. (1995). Evidence on the strategic allocation of IPO, J. Finan. Econ. 

239–257. 

Hanley, K., Lee, C., and Seguin, P. (1996). The marketing of closed end fund IPOs: Evidence from 

transactions data, J. Finan Intermediation 5, 127–159. 

Husson, B., and Jacquillat, B. (1989). French new issues, underpricing, and alternative methods of 

distribution, in “A Reappraisal of the Efficiency of Financial Markets” (R. Guimaraes et al., Eds.). 

Springer Verlag, Berlin. 

Husson, B., and Jacquillat, B. (1990). Sous-évaluation des titres et méthodes d’introduction au second 

marché (1983–1986), Finance 11(1). 

Ibbotson, R. (1975). Price performance of common stock new issues, J. Finan. Econ. 235–272. 

Ibbotson, R., Sindelar J., and Ritter, J. (1988). Initial public offerings, J. Appl. Corp. Finan. 1(4), 37–45. 

Jacquillat, B., and Mac Donald, J. G. (1974). L’efficacité de la procédure française d’introduction en 

Bourse, Rev. Banque 31–39. 

Jacquillat, B., Mac Donald, J. G., and Rolfo, J. (1978). French auctions of common stock: New issues, 

J. Bus. Finan. 2, 305–322. 

Kandel, S., Sarig, O., and Wohl, A. (1997). The demand for stocks: An analysis of IPO auctions, 

Working paper, Tel Aviv University. 

Keloharju, M. (1993). The winner’s curse, legal liability, and the long run price performance of initial 

public offerings in Finland, J. Finan. Econ. 251–277. 

Koh, F., and Walter, T. (1989). A direct test of Rock’s model of the pricing of unseasoned issues, 

J. Finan. Econ. 251–272. 

Leleux, B. (1993). Post–IPO performance: A French appraisal, Finance 14(2), 79–105. 

Levis, M. (1990). The winner’s curse problem, interest costs and the underpricing of initial public 

offerings, Econ. J. 76–89. 

Loughran, T., Ritter, J., and Rydqvist, K. (1994). Initial public offering: International insights, Pacific- 

Basin Finan. J. 2, 165–199. 

Michaely, R., and Shaw, W. (1993). The pricing of initial public offerings: Tests of adverse selection 

and signalling theories, Rev. Finan. Stud. 7(2). 

Mirat, B. (1983). Les Introductions sur le Second Marché, Banque 1127–1134. 

Mirat, B. (1984). Les Introductions sur le Second Marché (1983–1984), Banque 1027–1035; 

1148–1156. 

Ritter, J. (1984). The hot issue market of 1980, J. Bus. 57, 215–240. 

Rock, K. (1986). Why new issues are underpriced, J. Finan. Econ. 15, 187–212. 

Sherman, A. (1999). Global trends in IPO methods: Book Building versus auctions, working paper, 

University of Minnesota. 

Sherman, A. (2000). IPOs and long term relationships, Rev. Finan. Stud. 13(3), 697–710. 

Smith, C. (1986). Investment banking and the capital acquisition process, J. Finan. Econ. 15, 3–29.


Spatt, C., and Srivastava, S. (1991). Preplay communication, participation restrictions, and efficiency 

in initial public offerings, Rev. Finan. Stud. 4, 709–726. 

Tinic, S. (1988). Anatomy of initial public offerings of common stock, J. Finance 789–822. 

Welch, I. (1989). Seasoned offerings, imitation costs, and the underpricing of initial public offerings, 

J. Finance 44, 421–449. 

Wilhelm, W. (1999). Internet investment banking: The impact of information technology on 

relationship banking, J. Appl. Corp. Finan. Spring. 

Wilson, R. (1979). Auctions of shares, Quart. J. Econ. 675–698.

IPO Auctions: English, Dutch, ... French, and Internet

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?