The Federal Trade Commission's action to eliminate basing-point pricing in the soft plywood industry during the mid 1970s created a natural experiment: the author finds that the FTC's action had no effect on the delivered price of the base-site product (Douglas fir plywood) but decreased the delivered price of the non-base-site product (pine plywood) for many consumers. The evidence suggests that the detrimental effects of basing-point pricing for economic welfare were reflected entirely in the behavior of non-base-site firms. Copyright 1992 by American Economic Association.

The Federal Trade Commission's action to eliminate basing-point pricing in the softwood plywood industry during the mid-1970's created a natural experiment: I find that the FTC's action had no effect on the delivered price of the base-site product (Douglas fir plywood) but decreased the delivered price of the non-base-site product (pine plywood) for many consumers. The evidence suggests that the detrimental effects of basing-point pricing for economic welfare were reflected entirely in the behavior of non-base-site firms.

In contrast with numerous studies that find significant underpricing for initial public offerings of industrial firms, we document a statistically significant average return of −2.82% on the first trading day for a sample of 87 initial public offerings of real estate investment trusts during the 1971–1988 period. Our overpricing result is invariant to offer price, issue size, distribution method, offer period, and underwriter reputation. Newly issued REITs, on average, substantially underperform a matching sample of seasoned REITs during the first 190 trading days. Interestingly, buyers of overpriced REITs are predominantly individual or non-13(f) institutional investors.

This paper extends the Cass criterion for production efficiency to include uncertainty and uses it to show that a stock market equilibrium in an overlapping-generations model with production uncertainty is efficient. It also develops a no-bubbles asset-pricing formula. Results are compared with Brock's (1982) infinite-lived consumer model and it is shown that the stock market equilibrium in the overlapping-generations model has precisely the same asset valuation as Brock's infinitely-lived agent model.

[We examine market crashes in the multiperiod framework of Glosten and Milgrom (1985). Our analysis shows that if the market's prior beliefs underestimate the extent of dynamic hedging strategies such as portfolio insurance, then the price will be greater than that which would be implied by fundamentals if the extent of portfolio insurance were known with certainty. Over time, the market learns of the amount of portfolio insurance, and consequently reevaluates the previous inferences drawn from purchases that were erroneously regarded as based on favorable information. The result is that the price falls when the amount of portfolio insurance is revealed.]

We examine market crashes in the multiperiod framework of Glosten and Milgrom (1985). Our analysis shows that if the market’s prior beliefs underestimate the extent of dynamic bedging strategies such as portfolio insurance, then the price will be greater than that which would be implied by fundamentals if the extent of portfolio insurance were known with certainty. Over time, the market learns of the amount of portfolio insurance, and consequently reevaluates the previous inferences drawn from purchases that were erroneously regarded as based on favorable information. The result is that the price falls when the amount of portfolio insurance is revealed.

David C. Mauer, Lemma W. Senbet, The Effect of the Secondary Market on the Pricing of Initial Public Offerings: Theory and Evidence, The Journal of Financial and Quantitative Analysis, Vol. 27, No. 1 (Mar., 1992), pp. 55-79