This paper fulfills a great need for empirical evidence on the impacts of the supply, demand and allocation of shares on the underpricing of initial public offerings (IPOs). Exploiting a unique dataset and the institutional framework of Saudi Arabian IPOs, we construct a simultaneous equations model of supply and demand. Our evidence indicates that both curves of the market listing day supply and demand of IPOs are significantly negatively sloped with the supply curve being much steeper and above the demand curve. This is consistent with the idea that subscribers "flip" in IPOs immediately on the listing day to capture instantaneous profits. The excess demand that occurs during the subscription period becomes excess supply once the shares start floating on the listing day. Our study is the first move towards addressing the underpricing puzzle in a supply and demand context.