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Collusion, Custom, or Negotiation Costs?


This paper supports and extension of the negotiation hypothesis begun in Harris (1991) and calls into question the evidence of implicit collusion developed in Christie and Schultz (1994). This paper documents the distribution of prices per share for initial public offerings, mergers and acquisitions, and self-tender offers. These markets were selected because they lack the potential for bid-ask collusion. Despite the lack of bid-ask collusion in IPOs, M&As, and self-tenders, prices are often quoted in rounded amounts per share – avoiding quotes ending in add eighths, off quarters, and odd halves. Two new hypotheses are offered to explain the lack of off-eighths quotes and other previously unexplained pricing phenomena.

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