Uniform Price Auctions with a Public Pool: An Experimental Examination Using an IPO Setup

Abstract

We offer experimental and theoretical evidence that large, sealed-bid, multi-unit common value auctions for assets with substantial price uncertainty may be improved through hybrids with a separate retail tranche or ‘public pool.’ The auctions in our laboratory experiments incorporate initial public offering (IPO) features including endogenous entry, costly information acquisition and differing capacity constraints. Hybrids increase proceeds and reduce price volatility, price errors and incentives for small bidders to free ride. Our results suggest that auctions of IPOs, equity crowdfunding/crowdinvesting, risky debt and other assets with substantial price uncertainty should include separate public pools (non-price-setting tranches) for the general public.

Keywords: Common value auction, Experimental, Competitive bidding, Uniform price auction, Multi-unit auction, Hybrid auction, Initial public offering, Retail tranche, Public pool, IPO auction, private equity, equity crowdfunding, crowdinvesting, JOBS Act, Regulation A

JEL Classification: C92, D02, D44, G02