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RE: The Bid-Pooling Myth
Steve Ross's message was extremely thoughtful and insightful.
A related issue is the desirability of having clear, exception-free (or as
close as we can make them exception free) rules of per se illegality, that
businesspeople can understand. We want businesspeople to get the message
"don't do it" as opposed to the message that perhaps a smart lawyer can
confuse things and get them off, so why not give it price fixing a try.
Even if the courts could "get it right" most of the time, the clarity of
the message would be diminished.
On Thu, 10 Jul 1997, Ross, Steve wrote:
> 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
> >From: ETCHISON.GC@EMAIL.PUC.TEXAS.GOV[SMTP:ETCHISON.GC@EMAIL.PUC.TEXAS.GOV]
> >Sent: Thursday, July 10, 1997 12:52 PM
> >To: email@example.com; Atfirstname.lastname@example.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
> >email@example.com] and provide your land address.