The Puzzling Persistence of the Fixed Price Offering: Implicit Price Discrimination in Ipos

19 Pages Posted: 8 Sep 2005

See all articles by Sean J. Griffith

Sean J. Griffith

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Date Written: October 31, 2005


This chapter for a book on the regulation of primary securities markets investigates the persistence of the fixed price offering in the United States. Fixed price offerings present a puzzle because economic theory suggests that sellers would maximize returns by offering IPO shares for sale at different prices depending upon characteristics of the buyer or the buyer's order. Contrary to this expectation, however, American companies uniformly sell IPO shares at a single fixed offering price. Moreover, this is true regardless of whether the shares are sold through the traditional book-building process or at auction. This phenomenon is not a function of the legal or regulatory structure governing public offerings in the United States, which neither mandates fixed price offerings nor bars price discrimination in IPOs. Instead, it appears to be a result of the market power of underwriters. A close examination of the offering process reveals a form of implicit price discrimination in which underwriters clearly engage - that is, the selective allocation of shares with resale restrictions. The chapter argues that underwriters favor implicit price discrimination over explicit price discrimination because the benefits of implicit price discrimination redound to the underwriter while explicit price discrimination would benefit issuers and eliminate an important (but hidden) component of underwriter compensation.

Keywords: IPO, IPOs, public offerings, securites, SEC, securities law, price discrimination, fixed price, initial public offering, primary market, underwriter, issuer, spinning, implicit price discrimination

JEL Classification: G3, G30, G34, G39

Suggested Citation

Griffith, Sean J., The Puzzling Persistence of the Fixed Price Offering: Implicit Price Discrimination in Ipos (October 31, 2005). Available at SSRN: or

Sean J. Griffith (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics