The point the authors seem to be making (haven't read the paper, just read the article) is that this phenomenon of pricing IPOs based solely on "precedent" is limited to American banks. Another trite phenomenon, competition, seems to be present in Europe, where deals seem to be priced based on novel parameters like demand, risk, size, and financial complexity.

Also, if your observation above is in fact correct and investment banks continue basing their pricing on what they've done for the last 20 years, then I wouldn't worry about the government coming in and messing with their business - reliance on logic like "it's how we've always done things" is sure to bring about obsolescence first.

So you have extremely strong evidence of legal and anti-competitive practices and nothing can probably be done ?? Is the US financial industry now untouchable? Sounds like some south american banana republic from the 70's to me.

The scary thing is this probably speaks volumes about the insidious effect of the banking industry on the US economy. (BTW - I am a brit and living on the UK but I care because if the US economy goes I'm pretty sure it'll drag the UK and most of western europe down with it.

Implicit collusion is legal in the United States.

Wow! So if you can't prove they are explicitly colluding then its OK? Doesn't this mean they can get away with it by, for example, not having anything written down or recorded? I assume this applies to all industries E.g. the health Industry?

I'm getting more and more worried about the US.

That narrative doesn't explain the discrepancy. Why hasn't competition altered the rates?

Would you be more likely to eat at a restaurant that had a big "Tips are only 10% here" sign in the window?

If one restaurant has a "default" service charge of 10%, and another has 20%, it very probably will sway me to the 10% one, yes (these figures will be printed at the bottom of the menu, are normally added to your bill but you can ask to have them removed, and the menu will be at the door or window, visible from the street, I believe it's a legal requirement). But then tipping culture is different in the UK.

I understand what you're trying to get at - giving investment banks an incentive etc. - but the high degree of conformity doesn't make sense. Even large slices of small pies won't interest banks much, and similarly only a small slice of a huge pie ought to interest them plenty.

The point wasn't really so much about the incentive, but just that service fees are often cultural. Conformity doesn't come from economic forces, but cultural ones.

I think there's a big difference between service fees on a $10 dinner and a $100 million-$5 billion IPO. In particular the extent to which they are affected by custom is probably different considering the size of the sums. And the reason for the "tip" . . . nobody feels bad about giving an investment bank as little as they can get away with, but with tips it's a different story.

Financial services industry operates more like healthcare and law than say consumer products with regard to pricing practices and competition (in the context of advisory, not lending). You wont find a lot of doctors or lawyers bragging about how low their rates are because price is a perceived indicator of quality. That being said, a convention began a long time ago that a fair price to pay to a top notch bank is 7% and everyone has stuck to it. If you were a client and were quoted 8%, you would demand to know what makes you different than the hundreds of other (perhaps weaker) companies that got a better deal. If you were quoted 5%, unless the circumstances were extraordinary, the dozens of companies in the pipeline are going to expect the same treatment. So the question to the investment bank comes back to this: why rattle a system that works and is accepted as is?

To be frank, price competition exists in banking but most companies dont care about it. There are a lot of IPO's that take place and you'd be amazed how many of them "fail". You just dont hear about them because they are so small and underwritten by smaller banks. Big/successful companies dont care about the arbing the 100-150 basis points and risk jeopardizing the success of their IPO by picking someone other than Goldman.

I would be curious to know if you have any ideas about why this convention doesn't hold in Europe? Is it less important to signal quality by working with a top bank? Are regulations different? As a finance outsider, it seems that European banks would be playing a very similar role to their American counterparts and financing a comparable range of companies. The difference in the spread is quite striking.