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Could you explain a bit more? I don't see how free riders are a problem. Anyone who's willing to pay an arbitrarily high price in order to get in on the stock s
by CobrastanJorji 10y ago
Could you explain a bit more? I don't see how free riders are a problem. Anyone who's willing to pay an arbitrarily high price in order to get in on the stock should probably get some stock. If there are enough such actors, they'd significantly raise the sale price, but that's the point, isn't it?
- DenisM 10y agoTwo problems: 1. Suppose two funds compete, and the both partake in a Dutch auction. They end up with having the same stock at the same price at the dutch auction, and so the same income. However the free-rider gets fewer expenses so his profits are higher. The diligent fund is losing to the free rider in profits. After a while there are no more diligent funds. 2. The diligent fund prices stock at "proper" value, the free-rider prices it higher hoping to pay the lower, "proper" price but getting ahead of the diligent fund in the queue. If there are many free-riders they all end up in the queue before the diligent fund, so the latter may get less stock, or no stock at all. After a couple of such experiences the diligent funds stop partaking in any new Dutch auctions.