The banks compete against each other on price - the company gets to freely choose the underwriter and they take price into account.
Do you have evidence the banks are colluding on price?
Edit: to clarify, no the banks do not really set the IPO price. The banks offer different underwriting prices. The company ultimately chooses the price among the many banks' offers.
> Do you have evidence the banks are colluding on price?
Nope, which is why I wrote that I have no opinion on that. Edit: I think that very direct collusion would probably not be a stable arrangement, long term. But perhaps 'not competing too hard' between a low number of competitors with big barriers to entry is realistic.
> Edit: to clarify, no the banks do not really set the IPO price. The banks offer different underwriting prices. The company ultimately chooses the price among the many banks' offers.
That's still a way less transparent and market-oriented option than auctioning the shares. It's a hell of a lot easier for a few banks to be 'gentlemanly' in their competition than it is for lots of people trying to get some shares at an IPO via an auction.
I mean, we're discussing an IPO that was "oversubscribed" at the set price, meaning money was being left on the table, right?
> They are quite literally setting the prices of IPO's though, by fiat, and not via an auction or some other market-oriented mechanism.
Er, no, it's literally set by an auction (the auction occurring between the different banks who can underwrite the IPO).
A bank that is consistently able to predict the IPO opening-bell price better than the others, or is willing to accept a slightly smaller cut than the others, will win the auction, and will outperform the others on average.
I have no opinion about actual 'collusion' but the mechanism looks pretty bad seen from afar.