Which allocation method is considered fair for distributing limited opportunities such as IPOs?

The pro-rata allocation method is deemed fair for distributing limited opportunities like initial public offerings (IPOs) because it distributes the available shares in proportion to the amount each investor has requested. When demand exceeds supply, pro-rata allocation ensures that all interested parties receive a share of the opportunity, albeit a portion relative to their request. This method mitigates the potential for favoritism and ensures that all investors have a fair chance based on their interest level.

For instance, if an investor requests more shares than can be offered, a pro-rata approach would allocate shares based on the percentage of the total demand they represent. This promotes fairness by aligning share distribution with interest and investment size while preventing a few large investors from monopolizing the entire offering.

In contrast, other methods such as random allocation, rotation of orders, or equal allocation may not effectively accommodate varying levels of demand or interest across different investors. Random allocation can be arbitrary and may result in dissatisfaction among investors who feel they deserve more based on their commitment. Rotation of orders might favor those who have previously received allocations, and equal allocation can ignore the differing levels of interest and investment stature among investors. Thus, pro-rata allocation is widely recognized as the most equitable method for addressing the challenges of limited opportunities in an IPO setting