I noted somewhere recently that bid rigging is an illegal act between competitors, but not friends. In other words, two friends could attend an auction, and the one could legally not bid against the other for the sole reason that the one didn’t want to cause the other to pay more, or outbid the friend.
We wrote about auction bid rigging, also known as auction collusion, some time ago.
First, is there a difference between “rig rigging” and “collusion” when referring to auctions? Let’s look at the National Auctioneers Association’s glossary:
- Bid rigging: The unlawful practice whereby two or more people agree not to bid against one another so as to deflate value. See “Collusion”.
- Collusion: The unlawful practice whereby two or more people agree not to bid against one another so as to deflate value or when the auctioneer accepts a fictitious bid on behalf of the seller so as to manipulate or inflate the price of the property.
It would appear both activities are about the same, with collusion having the additional issue of the auctioneer accepting fictitious bids on behalf of the seller. Nevertheless, our issue here is, “can friends commit bid rigging?”
How might this occur?
Jessica is a fairly regular auction attendee. She buys items for her antique shop in the “near north” shopping area, and she puts a few items in a booth at a local antique mall. She knows most all the other dealers and regular attendees at auctions in her area.
At a Saturday auction, Jessica and her best friend (Ellen) are in attendance. As the auction progresses, Jessica and Ellen become separated. Soon after, a Wavecrest dresser box comes up for bid. Jessica feels this Wavecrest dresser box would resell in her store for about $200. Ellen had also noted this same dresser box, hoping to buy it for her mother.
The bidding starts out at $25 and Jessica bids $30. The next bid is $35 and Jessica bids $40 and then Jessica notices Ellen bidding $45. Jessica walks over to Ellen and tells her, “I won’t bid any more, since I really want you to have that for your mom.” Ellen replies, “Thanks, Jessica; you’re a real friend.”
This is when friends (or at least one friend) has committed bid rigging.
Auctions are competitive bidding events where the public must bid in good faith. In other words, the bidders are forbid by law to bid in any fashion other than the genuine intent to purchase. There isn’t an exemption for “friends” as I so noted someone referencing.
Are there legal reasons for Jessica to not bid at this point? Sure, such as:
- She suddenly realizes the Wavecrest dresser box has a crack or other imperfection which negatively impacts the value.
- She suddenly realizes she doesn’t have enough money on her person to pay over $40.
- She suddenly realizes there are fifteen more of these Wavecrest dresser boxes in the auction, and thinks prices will be lowered accordingly.
- She just changes her mind … for whatever reason, other than because someone else in particular is bidding.
Bid rigging by friends is not often addressed by auctioneers, as most consider it acceptable behavior. Yet, bid rigging of any kind not only encourages such continued behavior, but is damaging to the auctioneer’s client.
Too, bid rigging is difficult to substantiate, yet alone prove. For instance, how do we prove Jessica didn’t bid because Ellen was bidding? Jessica could easily say that she stopped bidding because of some other legitimate reason. Often, outside of admission, or testimony of another involved, only a pattern of behavior can be used to prove bid rigging with any reasonable certainty.
Can friends commit bid rigging. They sure can.
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 serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.