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- Collusion is an agreement, usually illegal and therefore secretive, which occurs between two or more persons to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage.
We ask here, “What is collusion at an auction?”
Collusion at an auction can involve bidders (buyers), sellers, and/or auctioneers. Unfortunately, there are numerous citations of auction collusion cases in the United States each year, involving all of the aforementioned. Here we’ll analyze the various types.
Bidders (Buyers) collusion
Typically, bidders collude by agreeing with each other to not bid against each other, allowing prices to decrease accordingly. Then, those who were involved in the collusion later divide up or apportion the excess profits made by each buying at a discount; sometimes a second auction follows the victimized auction involving only the participants in the collusion.
Sellers collude generally by bidding on their own items, or employing someone to bid for them, to falsely increase prices buyers are required to pay. While there are instances where sellers are permitted to bid, usually collusion involves illegal activity, where such bidding is either not disclosed, and/or not permitted.
Auctioneers can collude by either misrepresenting items they are selling, or selling them quick to a bidder who is bidding for the auctioneer’s interest. Alternately, auctioneers sometimes bid with the sole intent of raising prices that the buyer(s) must pay.
It is worth noting that often when these types of cases are brought forth, the Sherman Antitrust Act is mentioned as the standard which those involved have violated.
The Sherman Antitrust Act was named after Senator John Sherman, an Ohio Republican and chairman of the Senate Finance Committee; the Act was signed into law by President Benjamin Harrison on July 2, 1890. As late as 1993, the United States Supreme Court commented about the Sherman Antitrust Act with these remarks:
- “The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.”
Collusion is not unique to the live auction business. In fact, I suspect that collusion is more rampant in the online auction business than the live auction business. However, I also suspect that the occurrences in the live auction business are more often discovered due to the open nature of a live auction.
Auctioneers confronted with even strong evidence of collusion are often times pressed to do anything about it. If two bidders actually say, aloud, “Let’s not bid against each other, and later we’ll divvy up the profits …” then an auctioneer may be able to bar those two bidders from participating in the auction, and take other action against them. However, it is rarely so blatant, or easy to prove.
Auctions represent fair, open, market price discovery in their purest form. Collusion can quickly distort realized prices and harm bidders (buyers), sellers and auctioneers. Those participating in collusion should be punished to help preserve the public’s confidence in auction marketing.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is Executive Director of The Ohio Auction School.