$100 million for corporations and $1 million for individuals, auction, Auction Law, auctioneer, auctioneers, auctions, Beaver City, Bennie, bid, bid suppression, cast iron banks, competitors, criminal, disingenuous bidding, ethical, Evan Williams, false statements statute, financial harm, illegal, John, legal, mail or wire fraud, Nebraska, personal property, refrain, Sherman Antitrust Act, The Sherman Act, unethical, United States Department of Justice
John attends 2-3 auctions per week and is an avid collector of many things; what he doesn’t collect, he still buys if he thinks it’s a deal and attempts to resell. Today, John’s “addiction” brings him to Beaver City, Nebraska for an personal property auction, starting at 10:00 a.m.
John arrives and surveys the items up for bid, checking his smart phone for item details and comparative pricing. Just then, he sees his longtime friend, Bennie across the back yard. John attempts to get Bennie’s attention, but Bennie is busy surveying items as well, and does not notice John.
Auctioneer Evan Williams alerts the crowd that the auction is about to start, and everyone should ensure they are “registered with a bid number in hand.” Evan goes over the terms and conditions of the auction and then his ringman holds up the first item for bidding.
The auction goes about 30 minutes, when a pair of cast iron banks are the next item. John has had his eye on these banks since he arrived at the auction several hours ago. He is prepared to go up to $500 on these banks. John notices that Bennie is paying particular attention to these banks as well, from across the yard about 100 feet away.
The bidding goes as follows:
- Evan asks for a bid of $750. John bids $200 and a woman right next to John bids $225. John bids $250 and then the woman bids $275. John bids $300 and the woman bids $325; John bids $350 and the woman bids $375. John bids $400 and the woman stops bidding.
- Evan announces, “Folks, I have $400 on these and I would like to have $425!” Just then, Bennie bids $425 and Evan turns to John and says, “Give me $450!” John thinks, “I don’t want to bid against Bennie …” and so he doesn’t bid anymore.
- Evan announces, “I have $425 and I would like $450 for these banks!” Just as Evan begins to say, “Sold!” to Bennie, he checks with John again, “Are you sure?” John nods his head that he is sure he’s out.
- As Evan turns back towards Bennie, signaling that he “has the bid,” another bidder bids $450. Bennie declines to bid $475 and John thinks, “Well, since Bennie is out, I’ll bid again.”
- John yells to Evan, “I’ll give you $475!” Evan accepts John’s bid of $475 and then Bennie suddenly bids $485. Evan looks to John and says, “I have $485 … give me $495!” John thinks to himself, “Bennie is the high bidder, and I don’t want to bid against him.” John declines to bid $495 and Evan says, “Sold!” to Bennie for $485.
The Antitrust Division of the United States Department of Justice characterizes “Bid suppression” as follows:
- In bid suppression schemes, one or more competitors who otherwise would be expected to bid, or who have previously bid, agree to refrain from bidding or withdraw a previously submitted bid so that the designated winning competitor’s bid will be accepted.
Let’s explore if John’s behavior constitutes bid suppression. If we look at what John was thinking throughout the auction of these cast iron banks, here’s what we find:
- John is willing to bid up to $500 on these cast iron banks.
- John thinks “I don’t want to bid against Bennie …” and doesn’t bid $450.
- John thinks “Well, since Bennie is out, I’ll bid again.” and bids $475.
- John thinks “Bennie is the high bidder, and I don’t want to bid against him.” and doesn’t bid $495.
What John is practicing here is indeed “bid suppression.” It involves him bidding without the genuine intent to purchase — disingenuous bidding, and rather bidding with the intent to purchase only when he isn’t bidding against a particular other bidder.
Further, the United States Department of Justice says:
- Enacted in 1890, the Sherman Act is among our country’s most important and enduring pieces of economic legislation. The Sherman Act prohibits any agreement among competitors to fix prices, rig bids, or engage in other anticompetitive activity. Criminal prosecution of Sherman Act violations is the responsibility of the Antitrust Division of the United States Department of Justice.
- Violation of the Sherman Act is a felony punishable by a fine of up to $10 million for corporations, and a fine of up to $350,000 or 3 years imprisonment (or both) for individuals, if the offense was committed before June 22, 2004. If the offense was committed on or after June 22, 2004, the maximum Sherman Act fine is $100 million for corporations and $1 million for individuals, and the maximum Sherman Act jail sentence is 10 years. Under some circumstances, the maximum potential fine may be increased above the Sherman Act maximums to twice the gain or loss involved. In addition, collusion among competitors may constitute violations of the mail or wire fraud statute, the false statements statute, or other federal felony statutes, all of which the Antitrust Division prosecutes.
- In addition to receiving a criminal sentence, a corporation or individual convicted of a Sherman Act violation may be ordered to make restitution to the victims for all overcharges. Victims of bid-rigging and price-fixing conspiracies also may seek civil recovery of up to three times the amount of damages suffered.
The entire auction industry’s success is dependent upon the legal and ethical behavior of sellers, bidders (buyers) and auctioneers. Bidders who practice bid suppression inflict financial harm on sellers and the auction industry as a whole; this type of behavior should not be endured.
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.