Question of the day
2026-08-09
How does a Dutch auction IPO work, and how does it aim to reduce underpricing?
Answer it out loud first — like you would in the room. Then check yourself:
Reveal the model answer
Model answer
In a Dutch auction (e.g., Google 2004), investors submit bids stating price and quantity. Bids are ranked high to low; the clearing price is the highest price at which the full offering can be sold, and all winning bidders typically pay that single clearing price. By letting market demand set the price directly, it aims to capture more value for the issuer and reduce first-day underpricing and discretionary allocation — though in practice results have been mixed and adoption limited.
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