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Monday, May 10, 2004
An Auction of Google
Posted by Lance
For those with an interest in auction theory, the Google IPO auction gives an interesting testbed for auction mechanism design. Instead of having an investment bank set a fixed price for the IPO, instead Google will auction off the shares.A New York Times article today describes many of the decisions and possible pitfalls of the various kinds of auctions Google might use. Also check out the Google SEC filing. One can learn quite a bit about auctions as well as the business of search engines from this rather informally written document. I have never had so much fun reading a prospectus.
My prediction: Great interest in Google will highly overvalue the stock whatever auction mechanism they will use. If you are interested in investing in Google, hold off until the price settles or you will suffer the dreaded "winner's curse."
7:22 PM
# 5 comments
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This post has been removed by a blog administrator.
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Blogger.com has a new commenting feature which I am trying out. I deleted the previous comment as a test.
I left the old commenting system in place for earlier posts.
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Test post... but also to say I hear there's an economic theory that says the style of auction doesn't matter (in theory) at all: the price ends up being the same no matter what. (Macneil)
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The Revenue Equivalence Theorem for auctions requires, among other things, that the buyers have private independent valuations. The opposite is true in the Google auction, we have a common unknown valuation (future stock price of Google). In that case different auction mechanisms may yield different outcomes.
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Google's dutch auction is going to be interesting, you can find more information on some of the issues here
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