The claim is that the banking community is so tight-knit that they collude with each other to keep the book price down. So what Google did was to hold a silent auction on bids and allotments, only to find when the process was over that most banks essentially bid around the same mark anyway.
Your tone seems dismissive of the claim, but finding out that a bunch of people all bid about the same amount when they only way they could find out what each other were bidding is collusion doesn't exactly count as evidence against collusion, does it? It's not great evidence for, but at least if bids were all over the place it would be evidence that many banks don't have an informal cartel or whatever.
I didn't mean it to come across that way, because I totally believe that they do collude. If they didn't then that entire part of the industry would become hyper competitive, unstable and probably a zero-margin (or even loss-leading) business.
These conglomerates in investment banking could handle the business and not make anything on it, they just don't like that. There also is a lot of work involved, so the fees are somewhat justified (see the Microsoft IPO article for an idea of how much work goes into it) - this wasn't helped by Sarbanes Oxley which added a whole new layer of pain-in-the-ass to the process, that only a select few hold the cure for.
There is also an element of this only being a problem when there is a significant first-day rise. You don't hear anybody complaining about it when stocks tank or run level on the first day (if you look at all the tech IPO's from past few years - opentable, rackspace, netflix, renren, etc. most have not done too well in short term).
What would improve the situation would be the companies being able to raise more of the money overseas and thus introducing more competition into the process. Atm overseas funds can buy in after a listing, but for some reason a lot of the pre-listing sales tend to take place in the USA and amongst the usual suspects.
> If they didn't then that entire part of the industry would become hyper competitive, unstable and probably a zero-margin (or even loss-leading) business.
Well, that's what all colluders and monopolists say. I don't see any problem with this outcome. The inefficient get out of the business, and margins settle back to what the market demands.
Your tone seems dismissive of the claim, but finding out that a bunch of people all bid about the same amount when they only way they could find out what each other were bidding is collusion doesn't exactly count as evidence against collusion, does it? It's not great evidence for, but at least if bids were all over the place it would be evidence that many banks don't have an informal cartel or whatever.