When asked why Google used an auction for its IPO, CEO Eric Schmidt replied that

Question

When asked why Google used an auction for its IPO, CEO Eric Schmidt replied that they chose it as "a means of allowing (everyone) to participate". Does the goal of opening an IPO to everyone justify the choice of the auction method? As usual, choose the one best answer. a. This goal, by itself, does not explain the choice of an auction, since there are other ways to open an IPO to everyone. However, the choice of an auction still made sense, since auctions in theory price shares accurately. b. This goal, by itself, docs not explain the choice of an auction, since there are other ways to open an IPO to everyone. Moreover, there are reasons to believe that auctions are risky and may not lead to accurate pricing. c. This is a reasonable justification, since it is the only way to allow everyone to participate. Moreover, an auction is a good idea because it prices shares accurately and eliminates flippers. d. This is a reasonable justification, since it is the only way to allow everyone to participate. Unfortunately, auctions are risky and may not be the best method of pricing an IPO, but this may be a necessary cost in order to achieve the goal of opening up the IPO process. e. This is a reasonable justification, even if there are other ways to allow everyone to participate, because auctions have been around for a long time and are well-tested, whereas other potential methods of opening up an IPO to everyone would be new and experimental.

Explanation / Answer

Does the goal of opening an IPO to everyone justify the choice of the auction method? , Answer is =

c. This is a reasonable justification, since it is the only way to allow everyone to participate. Moreover, an auction is a good idea because it prices shares accurately and eliminates flippers.

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