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The Bid-Pooling Myth
[FYI -- no endorsement implied. m.e.e.]
In today's edition of the _Journal of Commerce_ (July 19, 1997),
Catherine Heilman, a summer fellow of the Ludwig von Mises Institute and
an arts and economics major at Wellesley College, argues that a sweeping
antitrust investigation of the auction industry is based on a poor
understanding of the economics of auctions.
The Department of Justice has subpoenaed records from dozens of dealers
and auction houses, including Christie's and Sotheby's, to find evidence
of price fixing on premium and bid pooling by buyers. In particular,
Justice is seeking evidence of buyers "rings," pools of bidders who agree
not to outbid each other only to hold a later auction among themselves to
divide up profits.
But in today's highly competitive and globalized markets, where
anonymous bidding is common, price rings are virtually impossible to
sustain. Members face every incentive to defect. Even successful rings
face imposed reserve prices, and competition with other non-colluding
buyers, making it highly unlikely that bid poolers are going to walk away
with merchandise at below market prices.
Government regulators are attempting to police markets they know very
little about, and, in their zeal to prosecute, tend to confuse legal
syndicates with illegal rings. Meanwhile, because of the investigation,
buyers are shying away from using aggressive bidding strategies, which
ironically diminishes competition in auction houses.
Ms. Heilman's article can be found in the opinion section of the
_Journal of Commerce_, which is available at newsstands in most major
cities or through the web (joc.com) on a subscription basis. If you would
like a hard copy of her article, reply to this message [to
firstname.lastname@example.org] and provide your land address.