Jerry Knight, business columnist for the Washington Post, reports on the other “Dutch Auction” IPO. While Google has had most of the press, New River Pharmaceuticals Inc. also went public this August via the open IPO. Knight reports that New River collected $33.6 million by selling 4.2 million shares. (Roughly 2% of the $1.8 billion Google pulled in.)
Strictly speaking, I wouldn’t call the Google process a Dutch auction. In a Dutch auction, the auctioneer starts the bidding at a high price and reduces the price until quantity demanded equals the quantity offered for sale. Google, on the other hand, collected information about investor demands and then picked the price at which they wanted to sell at. The price eventually chosen was lower than the price at which quantity demanded would have equaled quantity supplied, with the resulting run up in price on the first day.
I can see why the company would prefer this approach to a strict Dutch auction, the company is in a better position to maximize the IPO’s value to the firm. But would consumers tend to bid lower in a price-discriminator’s auction (Google’s approach) than they would bid in a strict Dutch auction?
Sounds like a good question for experimental economics.