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Non-Tech : Interactive Brokers / Timberhill -- Ignore unavailable to you. Want to Upgrade?

To: sams291 who wrote (7314)	4/17/2007 5:53:48 PM
From: RockyBalboa	Read Replies (2) \| Respond to of 9012

So far I did not but I remember earlier auction processes, mostly google and some other openIPOs. The basic idea is that the dutch auction is a little bit more "efficient" than the traditional american tender. In the dutch auction the incentives are somewhat different, yielding a more certain outcome but it has somes side effects on ones strategy. In a given bidding scene, the average surviving bid tends to be too high for risk averse individuums and too low for risk loving bidders. Why? Anyone who wants to be a piece of the business must bid high enough to outbid. A risk averse bidder (e.g. someone who wants to own shares with a certain - high probability) has to bid high. His winning bid will be well ahead of the average price paid. The risk loving bidder may be awarded disproportionately by winning a low bid. Because the individual premium for a likely buyer is unjustified, in an equilibrium only few will show high bids with many showing low bids or several staged bids at lower prices to discriminate their own bidding. The price realized can be lower even if the issuer is able to profit from price discrimination amongst winning bidders. In a dutch tender, the risk loving individual is more likely to be pushed away from the market clearing price, if the incremental bidder bids as high as he can. Someone who wants to own shares can bid a very high price, profiting from lower bidders who keep the ultimate clearing price low. So his premium is not that high (it is the small increment by pushing a marginal bidder from the table). In an equilibrium this means that at a given demand the average realized price might be higher than in an american tender.