Not sure how you'd get that (n+1) business off the ground. Even with the current happy-go-lucky funding climate, I don't see much success in pitching the idea. "We'll take on the giant incumbents, by accepting additional risk on behalf of our clients, in return of reduced profits".
I agree that there would be a solid market demand for this company. The same way there would be much demand for a telecom/isp that provides more speed at reduced price. Consumer demand isn't always the only thing needed for a business to succeed, despite what pg says.
> Not sure how you'd get that (n+1) business off the ground. Even with the current happy-go-lucky funding climate, I don't see much success in pitching the idea.
This is a thought experiment, designed to illustrate that auctions (which IPOs are - an auction between underwriting banks) converge towards the maximum price that individual participants would be willing to pay. You can easily extend this logic to any individual participant.
> in return of reduced profits
You keep saying "reduced profits". If you seriously believe that banks are artificially keeping bids low, then there would be no reduced profits - any individual bank willing to outbid the rest consistently would completely sweep the entire market, capturing all profits across the market of banks which underwrite IPOs.
Of course, this won't happen, because banks aren't artificially keeping bids low, which is the whole point. You can't just point at the fact that post-opening bell prices are greater than IPO prices to show that banks are colluding with each other, because that doesn't prove anything. The current prices are completely consistent with a competitive market.
I agree that there would be a solid market demand for this company. The same way there would be much demand for a telecom/isp that provides more speed at reduced price. Consumer demand isn't always the only thing needed for a business to succeed, despite what pg says.