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Isn't that how just about everything is sold? My box of Cheerios isn't auctioned off; they picked a price. They had several factors that went into picking that

• acchow 9y ago
  Yes, and Cheerios sets their price to compete with other cereal providers. The consumer picks the company keeping the price in mind. That's how IPO pricing works too. The banks compete against each other and the company chooses their underwriter. This is how markets work. I fail to see how an IPO is "rather than using a market-based mechanism for price discovery, they pick a price to sell at". I think davidw is making some strong claims without understanding how the IPO process really works
• davidw 9y ago
  The pricing of Cheerios doesn't seem to suffer from the principle-agent problem, though. No one but consumers really 'wins' if cheerios are underpriced. And to my knowledge they don't continue to be traded once they're bought, either, so it's sort of apples to oranges.
  • chimeracoder 9y ago
    > The pricing of Cheerios doesn't seem to suffer from the principle-agent problem, though. No one but consumers really 'wins' if cheerios are underpriced This is not an example of a principal-agent problem. There are two competitive markets: the competitive auction between underwriting banks, and the competitive market between public traders. The price between these two differs because the underwriting banks assume a great deal of risk in the process - risk which otherwise would be borne by the company. > And to my knowledge they don't continue to be traded once they're bought, either, so it's sort of apples to oranges. Breakfast cereals are definitely sold wholesale by third-party suppliers (as are apples and oranges as well).