Suppose that a private firm wants to go public to give the owners a chance to retire.It follows the lead of the Google IPO by using a modified Vickrey (or uniform price)auction.The owners of the firm plans to sell 1 million shares and hope to raise at least $10 million from the auction.The following bids were submitted. Bob 250,000 shares at $12
Sam 350,000 shares at $13
Mary 300,000 shares at $9
Sue 100,000 shares at $10
Ravi 450,000 shares at $11
A)The market clearing price is $13,and the sellers of the firm get $13 million.
B)The market clearing price is $12,and the sellers of the firm get $13 million.
C)The market clearing price is $11,and the sellers of the firm get $11 million.
D)The market clearing price is $10,and the sellers of the firm get $10 million.
E)The market clearing price is $9,and the sellers of the firm get$9 million

Question

Quizplus · Accepted Answer

In a modified Vickrey auction, the market clearing price is determined by the bid of the highest bidder that is needed to sell all the shares. In this case, Ravi bid for 450,000 shares at $11, which is the highest amount needed to sell all 1 million shares. Therefore, the market clearing price is $11. The sellers of the firm get $11 million, which is the amount raised by the highest bidder multiplied by the number of shares sold to them.

Suppose That a Private Firm Wants to Go Public to Give