Collusion via signaling in open ascending auctions with multiple objects and complementarities

Collusive equilibria exist in open ascending auctions with multiple objects, if the number of bidders is sufficiently small relative to the number of objects, even with large complementarities in the buyers' utility functions. The bidders collude by dividing the objects among themselves, while keeping the prices low. Hence the complementarities are not realized

Aggregate Uncertainty in the Citizen-Candidate Model Yields Extremist Parties

We extend the 'citizen candidate' model of party formation to allow for aggregate uncertainty over the distribution of preferenecs in order to address free entry in some earlier research on electoral competition with aggregate uncertainty with a fixed number of parties. We discuss and characterize the equilibrium set in this framework and show that two-party equilibria have 'extremist' parties, i.e., the party winning under a left-wing (right-wing) distribution is to the left (right) of the median of that distribution.

Understanding reverse mergers: a first approach

A reverse merger (RM) is a technique in which a private company is acquired by a shell or defunct public company via stock swap. As a result, the private company becomes public. The main difference between an IPO and a RM is that an IPO allows going public and also allows raising capital while the RM only allows going public. This paper addresses the following question: Why do some companies prefer a RM to an IPO? We construct a three-period model in which a company has uncertainty about the availability of a project and need to issue equity to finance it. The model predicts that under suitable conditions, a separating equilibrium exists in which a high-type firm will prefer IPO and a low-type firm will prefer RM. The empirical evidence supports these predictions. In addition, looking at the cost of RMs between 1990 and 2000 in the NYSE and NASDAQ and adding the cost of an additional SEO, we find evidence to support the idea that an IPO and a RM are equally costly

Optimal secession rules

Should the constitution of a federation allow for peaceful secession? Constitutionally defined secession rules are optimal ex post if the federation breaks down. However, they may be suboptimal ex ante if the member countries receive a benefit from the perceived long-term stability of the federation and constitutionally defined secession rules increase the probability of a break-up. The optimal social contract trades off ex ante benefits and ex post losses, and it may avoid explicit secession rules. If transfers are costly, the trade off is present even if ex post renegotiation is allowed. Finally, we show that under asymmetric information it is more difficult to keep the federation together and that a secession war may occur. --

UNDERSTANDING REVERSE MERGERS: A FIRST APPROACH

A reverse merger (RM) is a technique in which a private company is acquired by a shell or defunct public company via stock swap. As a result, the private company becomes public. The main difference between an IPO and a RM is that an IPO allows going public and also allows raising capital while the RM only allows going public. This paper addresses the following question: Why do some companies prefer a RM to an IPO? We construct a three-period model in which a company has uncertainty about the availability of a project and need to issue equity to finance it. The model predicts that under suitable conditions, a separating equilibrium exists in which a high-type firm will prefer IPO and a low-type firm will prefer RM. The empirical evidence supports these predictions. In addition, looking at the cost of RMs between 1990 and 2000 in the NYSE and NASDAQ and adding the cost of an additional SEO, we find evidence to support the idea that an IPO and a RM are equally costly.

Price Discovery in the Pre-Opening Period. Theory and Evidence from the Madrid Stock Exchange.

Some stock exchanges, such as the Spanish Stock Exchange and Euronext (Paris), allow traders to place orders in a `pre-opening' period. Orders placed in this period are used to determine the opening price, and can be cancelled at any moment and at no cost by the traders. We consider a model in which noise traders can appear in the market before or after the opening, and a strategic informed trader decides her order strategy at the preopening and at the opening period. We characterize the equilibrium of such a model, showing that at the pre-opening there is a non-monotonic relation between the aggregate quantity ordered and prices. Thus, the equilibrium at the preopening stage is determined in a way which is fundamentally diferent from the equilibrium in the open market. We proceed to study the implications of the existence of a pre-opening period on information revelation and on the determination of the opening price. We present evidence from the Spanish Stock Exchange that seem to support the theoretical predictions, showing a clear diference in behavior between the market behavior before and after the opening of the market.

Merger Mechanisms

A firm can merge with one of n potential partners. The owner of each firm has private information about both his firm's stand-alone value and a component of the synergies that would be realized by the merger involving his firm. We characterize incentive-efficient mechanisms in two cases. First, we assume that the value of any newly formed partnership is verifiable, hence transfers can be made contingent on the new information accruing after the merger. Second, we study the case of uncontingent rules. In the first case, we show that it is not optimal, in general, to redistribute shares of non-merging firms, and identify necessary and sufficient conditions for the implementability of efficient merger rules. In the second case, we show that the first-best can be obtained i) always, if the synergy values are privately known but the firms' stand-alone values are observable; ii) only with sufficiently large synergies, if the firms' stand-alone are privately known; and iii) never, if the set of feasible mechanisms is restricted to "auctions in shares".