/sigh, that simply isn't true. 1. IPO investors are taking on a risk by investing. For that they get a return. IPOs can drop on first day too. 2. The bank typ

/sigh, that simply isn't true. 1. IPO investors are taking on a risk by investing. For that they get a return. IPOs can drop on first day too. 2. The bank typically underwrites the IPO. That means if there is a shortfall, the bank kicks in the rest. That is a risk for which the bank gets a return. 3. By "close friends" you mean the bank's clients. If demand exceeds supply you can sure bet their best clients will be first in line. 4. A price band is determined ahead of time. Its required for the prospectus. Determining demand is aguessing game. Better to be oversubscribed than under. 5. Having the press of being oversubscribed is good for the bank and the company. Lookup the illusion of scarcity. 6. For the same reason a big day one jump is good for both and it sets the tone for the stock to the markets. Auctions have been tried, famously with Google. Even then there was a big day one jump.