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34 BIAIS AND FAUGERON-CROUZET 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.
IPO AUCTIONS 35 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.
Page 1 and 2: Journal of Financial Intermediation
Page 3 and 4: IPO AUCTIONS 11 TABLE 1 IPO Selling
Page 5 and 6: IPO AUCTIONS 13 with the empirical
Page 7 and 8: IPO AUCTIONS 15 that the others wil
Page 9 and 10: IPO AUCTIONS 17 investor has the po
Page 11 and 12: IPO AUCTIONS 19 First note that con
Page 13 and 14: IPO AUCTIONS 21 FIG. 1. Buy orders
Page 15 and 16: IPO AUCTIONS 23 Consistent with our
Page 17 and 18: IPO AUCTIONS 25 TABLE 3 IPO price R
Page 19 and 20: IPO AUCTIONS 27 FIG. 3. OLS regress
Page 21 and 22: IPO AUCTIONS 29 investor’s anonym
Page 23 and 24: p(0) = v0, this can be rewritten as
Page 25: IPO AUCTIONS 33 Her task is to choo

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