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RE: The Bid-Pooling Myth (fwd)

  ---------- Forwarded message ----------
  Date: Thu, 10 Jul 1997 13:54:45 -0500
  From: "Ross, Steve" <SROSS@law.uiuc.edu>
  To: "'antitrust@essential.org'" <antitrust@essential.org>,
      "'At-members@abanet.org'" <At-members@abanet.org>,
  Subject: RE: The Bid-Pooling Myth
  Perhaps this investigation might serve as a useful discussion of per se
  rules.  The summary of the article does not dispute that some
  individuals pool together and limit their own bids, subject to a
  subsequent internal auction.  The article summary does not identify any
  efficiencies or other pro-competitive benefits that might accrue from
  this practice.  Although the author suggests that the government is
  investigating a market about which government lawyers know little, the
  author suggests that many sophisticated buyers are engaging in a
  practice which will do them absolutely no good.  
  I know that I know less than the government's investigators about
  auction markets, since I know nothing about them.  But I am very
  skeptical of a claim that sophisticated market participants are engaging
  in a fruitless practice.  With all respect, I am more inclined to trust
  their views of the relevant market, as demonstrated by their actions,
  that the views of the author.
  The author's thesis, unfortunately, has become very common among North
  American courts.  There is, of course, the Empire Gas case out of the
  8th Circuit some years ago, where the defendant was found to have
  attempted to fix prices with rivals; when the rivals refused, the
  defendant engaged in a variety of blatantly anticompetitive practices to
  exclude or punish the rivals.  The court concluded that the defendant's
  share of the relevant market was too small to prove attempted
  monopolization.  A few years ago, an Ontario trial judge acquitted
  participants in a blatant cartel among railroad freight forwarders,
  finding (there is no per se rule in Canada) that the defendants did not
  "lessen competition unduly" because of competition from truckers,
  notwithstanding the existence of the cartel for 11 years.  More
  recently, the Canadian Competition Tribunal approved a merger of the
  monopoly daily newspaper in Vancouver with several weekly papers,
  rejecting the government's evidence that the acquisitions were part of a
  strategy designed by a highly regarded business consultant who advised
  that the weeklies posed the most serious competitive threat to the
  dailies; the Tribunal concluded that the consultant was wrong.
  I would be interested in the views of others as to why so many
  economically sophisticated people think that courts and lawyers can't be
  trusted to evaluate conduct but can be trusted to accurately engage in
  market definition.
  Steve Ross
  University of Illinois College of Law
  504 E. Pennsylvania Avenue
  Champaign, IL  61820
  (217) 333-2502  [fax:244-1478]
  e-mail: SROSS@law.uiuc.edu
  >Sent: 	Thursday, July 10, 1997 12:52 PM
  >To: 	antitrust@essential.org; At-members@abanet.org
  >Subject: 	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 
  >misesmail@red.colossus.net] and provide your land address..