Auction collusion: What are your thoughts?

coingame2000

Okay, a collector pours his blood, sweat and tears into his highly specialized collection for over a decade and manages to assemble one of the finest sets ever in his particular field of endeavor. The time comes to sell and he consigns it for auction. He picks a premier auction house and one of the two traditionally best auction venues of the year. It appears as if the stage has been set for a very successful sale. Now here's the kicker. Prior to the sale a few of the leading "collectors" in this specialized area get together and divide up the collection among themselves (i.e., I'll take this one, you take that one, etc.) for the sole purpose of holding prices down by decreasing competition. Is this practice ethical or not? What do YOU think? Please be frank -- I am really interested in your comments.

Mike

bidask

Ethical, probably not, legal and fair, yes....your OP suggests a few, but not all the 'collector players' are doing this and that will result in multiple more potential bidders out there participating

STONE

If it could happen, I would love it as a buyer, but I don't think this could ever truly be achieved.
Is it ethical, I would say NO. Auctions are meant to draw out competition, and there would be no competition if a collaboration were engaged.

The person consigning/auctioning his items should then put a reserve in place to make sure he doesn't get duped into such a scheme or poultry bidding.


Therefore, from a buyers standpoint the plan would be wonderful, but from a sellers standpoint I would feel like I was being cheated by other members of the hobby.

dizzyfoxx

I absolutely feel it's perfectly ethical to do this. Why would anyone want to pay a penny more for any given coin then they need to. If collectors in the same field want to get together to pick and choose different coins so they're not needlessly and wastefully driving up realized prices, then more power to them. As far as the seller/consigner is concerned, of course I feel for them, but that it is just the harsh reality of economics.

BECOKA

As a buyer I like it. As a seller I would hope no one is smart enough to do this.

ricko

Whether or not there is collusion between two or more 'buyers'.. there are OTHER buyers as well, which could easily blow this plan to hell. Cheers, RickO

AU58WALKERS

no worse than a "respected dealer" bad mouthing a collection prior to auction and than bidding on items

wondercoin

Mike: Sorry to hear about this. This is the EXACT reason why I strongly suggest (and make sure) that collectors consigning with me coins, especially "thinly traded" coins (including a variety of "moderns"), reserve the coins for no less than they would be happy with obtaining if the coins sold. I am confident you also handled this consignment professionally, but, may have lost out on "bigger money" on some of the lots based upon what may have taken place. From what I know, I believe this may be fairly commonplace in the industry and widely in use - strong reserves may be the only "defense".

Wondercoin

Barndog

it happens, that's all I know.

mrpotatoheadd

I think buyers getting together and agreeing not to bid in order to hold down auction prices is about equally ethical as sellers getting together and agreeing to bid in order to drive prices up.

Barry

Unless it's a VERY specialized area, there are always others outside the Circle of Collusion™ bidding.

MrEureka

Not only is this unethical but it is unquestionably illegal, at least in the USA.

mozin

<< <i>Not only is this unethical but it is unquestionably illegal, at least in the USA. >>

My thoughts exactly.

Mark

Andy is correct. Anyone who says this action is legal doesn't know what he or she is talking about. There were some antique dealers convicted for just such an action about 15 or so years ago. Price fixing, be it on the part of sellers or of buyers (as in this case), is illegal.

Now, as far as ethical: Why is it any more ethical for buyers to conspire to drive the price down than it is for sellers to conspire to drive the price up? Yeah, I'm a buyer and I'd sure like to see lower prices but I think I can still see it's not ethical to "divide up" a collection as was allegedly done in this case.

DoubleEagle59

<< <i>I absolutely feel it's perfectly ethical to do this. Why would anyone want to pay a penny more for any given coin then they need to. If collectors in the same field want to get together to pick and choose different coins so they're not needlessly and wastefully driving up realized prices, then more power to them. As far as the seller/consigner is concerned, of course I feel for them, but that it is just the harsh reality of economics. >>



I think anyone who thinks this practise is ethical should read the definition of 'ethics' in the dictionary.

It's totally UNETHICAL!!

I will admit it happens all the time and yes, it is the 'harsh reality of economics'.

But ethical? Come on folks, get real.

adamlaneus

I think one can measure how unethical this situation is and perhaps even quantify the damage.

Let's say you have three different dealers, all selling the same product.

Let's say that you have three buyers, all looking for that product.

Let's examine what happens in the thinnest of markets:

Let's imagine that the three buyers 'murder each other' over one of those items. One buyer gets stuck with an expensive item bid up by two other people. Best situation for this seller.
Now, the other two buyers are left to buy the other two items. Those two 'murder each other' over one of the remaining items. This buyer gets stuck with an item that was bid up by one other person.
The last buyer gets to buy the last item at the initial offer price, as this is the only buyer left and the only item left. Worst situation for this seller.

Now, if it had gone the other way...all three buyers happened to bid only on different items...all three items go for the initial offer price. Worst situation for all three sellers.

Now, consider these three buyers in a more complex situation. They all collude to attempt to bid on individual items. But this time, there are 20 other bidders. You can think of it this way; the buyer collusion has reduced three buyers of one item to one buyer of three items. You have reduced your field of buyers from 23 to 21.

So, I guess I can measure the ethics of this situation.

I suppose most folks could handle a 10% unethical situation. It is likely to reduce the buy price of the item only by a little bit. And those auction prices are so high to begin with. Hmph!

coingame2000

Extremely interesting and varied responses so far. Thanks and please keep 'em coming. And yes, this practice IS illegal.

Mike

DoubleEagle59

<< <i>I think one can measure how unethical this situation is and perhaps even quantify the damage.

Let's say you have three different dealers, all selling the same product.

Let's say that you have three buyers, all looking for that product.

Let's examine what happens in the thinnest of markets:

Let's imagine that the three buyers 'murder each other' over one of those items. One buyer gets stuck with an expensive item bid up by two other people. Best situation for this seller.
Now, the other two buyers are left to buy the other two items. Those two 'murder each other' over one of the remaining items. This buyer gets stuck with an item that was bid up by one other person.
The last buyer gets to buy the last item at the initial offer price, as this is the only buyer left and the only item left. Worst situation for this seller.

Now, if it had gone the other way...all three buyers happened to bid only on different items...all three items go for the initial offer price. Worst situation for all three sellers.

Now, consider these three buyers in a more complex situation. They all collude to attempt to bid on individual items. But this time, there are 20 other bidders. You can think of it this way; the buyer collusion has reduced three buyers of one item to one buyer of three items. You have reduced your field of buyers from 23 to 21.

So, I guess I can measure the ethics of this situation.

I suppose most folks could handle a 10% unethical situation. It is likely to reduce the buy price of the item only by a little bit. And those auction prices are so high to begin with. Hmph!
>>



Maybe I got too much sun today, but I couldn't follow a thing you said.

Lakesammman

highly specialized collection

Key words - consign to a dealer in the same highly specialized area.

If less specialized, there are too many bidders for collusion.

Nysoto

Collusion is illegal. If its illegal, it is unethical, yet it probably happens in nearly every auction at some level that could not easily be proven or enforced.

edit - Collusion was made illegal in the US by the Sherman Act of 1890, which includes bid suppression and many other forms of price manipulation.

rpw

If it could happen, I would love it as a buyer, but I don't think this could ever truly be achieved.

I collect far more currency than coins and let me tell you that it happens frequently with currency. In particular, it happens at every major sale of National Bank Notes. It may be that the population of serious collectors is smaller and tends to know each other but it does seem to be more genteel. This has been discoursed upon by Chambliss.

"Let me close this chapter with a remark on buyer courtesy. You should recognize that some collectors have been searching for years for a particular NBN. and you should acknowledge their desire for that note.

Later, he goes on to state:

I might be bidding against a collector who has been seeking that particular note for years because it bears his grandfather's signature, or it is from the town in which his mother was born, or the bank is one that granted him a mortgage when others refused, etc. Then by all means, let him have the note at a reasonable price. You should neither want to pay an inflated priced [sic] for a note, nor should you want to have a fellow collector pay an inflated price just because you have a less than compelling interest in the same item.

adamlaneus

<< <i>Maybe I got too much sun today, but I couldn't follow a thing you said. >>



I guess what I meant to imply was:

In the three buyer - three seller - three item situation...collusion will cause two out of three of those sellers to suffer damages. One of the sellers will actually benefit. Probably. Random chance comes into play.

In the many buyer - three seller - three item situation...the amount of collusion damage to all of the buyers can be quanitified as a percentage based on how many buyers there are versus how many are colluding. Most assuredly. Random chance and the number of folks involved assure a certain amount of damage.

Yep, it's illegal!


But, passing on an item because you don't want to outbid someone else? Even if you know _why_ that person might be putting in strong bids on an item? That is not collusion and not illegal. There are many reasons why a particular buyer might choose a particular item out of an auction. The buyers do have a best price interest at heart. If there is any knowledge that might help them know who will bid strong on what, that knowledge can be used beforehand to try to arrange a more buyer-favorable bidding structure. You have to then ask yourself...how did one come across that knowledge? Maybe one buyer knows that the other buyer likes crusty coins with a specific look? Or you simply know some other tidbit that gives you a hint as to what they will bid on so you can make an alternate choice. Or was it collusion in a meeting between the two buyers beforehand? Or was it research of public records done by one buyer?

The OP situation sounds like the worst form of collusion. The three-buyer three-seller three-item case with full collusion between the buyers and no other buyers.

DoubleEagle59

<< <i> If it could happen, I would love it as a buyer, but I don't think this could ever truly be achieved.

I collect far more currency than coins and let me tell you that it happens frequently with currency. In particular, it happens at every major sale of National Bank Notes. It may be that the population of serious collectors is smaller and tends to know each other but it does seem to be more genteel. This has been discoursed upon by Chambliss.

"Let me close this chapter with a remark on buyer courtesy. You should recognize that some collectors have been searching for years for a particular NBN. and you should acknowledge their desire for that note.

Later, he goes on to state:

I might be bidding against a collector who has been seeking that particular note for years because it bears his grandfather's signature, or it is from the town in which his mother was born, or the bank is one that granted him a mortgage when others refused, etc. Then by all means, let him have the note at a reasonable price. You should neither want to pay an inflated priced [sic] for a note, nor should you want to have a fellow collector pay an inflated price just because you have a less than compelling interest in the same item. >>



No doubt it happens very often. I agree with you.

It's whether the practise is ethical or not. Of which there should be no doubt. Totally Unethical. Everyone on this forum should be 100% on this issue and people who think it is ethical, then I would prefer not to do business with.

Lakesammman

It's common to "partner" a coin for the same reason - just sounds nicer than collusion.

keets

the thought that collusion in a case like this is illegal sounds pretty stupid to me. in essence, what you're saying is that if you've ever sat in an auction room (and i'm referring to the OP and any other respondents who feel it's unetheical and illegal) with anyone and agreed to let your buddy win a coin by not bidding on it you are guilty as charged. i've done that and it's safe to assume most everyone else has to some degree, so we are all lawbreakers and need to turn ourselves in???? that's preposterous. even more ridiculoius is the thought of three graders at a TPG like NGC conferring on a coin's grade and deciding that maybe it should be a PR66 and not a PR67 because the latter is too expensive and might cause the company to incur a "gaurantee" loss someday. hey, that's another scenario that i know never takes place.

if a consignor is too stupid to place a reserve or buyback on items and he gets "colluded" while he also gets "clobbered" then it's his own fault for being stupid or cheap.

Mark

keets:

Have you ever walked across a street in the middle of a block? That's jay walking and is illegal. But it's so trivial that it's hard to think of someone being ticketed for it. So, too, with your buddy and you agreeing not to bid against each. That's so trivial it's hard to think of someone being prosecuted for it.

BUT occasionally the police will enforce jay walking laws and occasionally agreements among buyers will be prosecuted. Presumably jay walking laws will be enforced when the amount of jay walking is excessive and the buyer agreements will be prosecuted when they become excessive.

DoubleEagle59

if a consignor is too stupid to place a reserve or buyback on items and he gets "colluded" while he also gets "clobbered" then it's his own fault for being stupid or cheap.

keets, I understand this and agree with this (although I wouldn't have worded it so harshly).

But if you agree with another buyer not to go after a particular coin (that you would have bidded on initially) then the seller has lost one bidder/buyer of the coin because you have agreed with the second buyer not to bid on it.

I agree it happens all the time and is part of doing business but my point is, in the true sense of the word, it is UNETHICAL.

ebaytrader

<< <i>the thought that collusion in a case like this is illegal sounds pretty stupid to me. in essence, what you're saying is that if you've ever sat in an auction room (and i'm referring to the OP and any other respondents who feel it's unetheical and illegal) with anyone and agreed to let your buddy win a coin by not bidding on it you are guilty as charged. i've done that and it's safe to assume most everyone else has to some degree, so we are all lawbreakers and need to turn ourselves in???? that's preposterous. even more ridiculoius is the thought of three graders at a TPG like NGC conferring on a coin's grade and deciding that maybe it should be a PR66 and not a PR67 because the latter is too expensive and might cause the company to incur a "gaurantee" loss someday. hey, that's another scenario that i know never takes place.

if a consignor is too stupid to place a reserve or buyback on items and he gets "colluded" while he also gets "clobbered" then it's his own fault for being stupid or cheap. >>




Wow.


Just wow.


Bid rigging is illegal.

Some go to prison.

Despicable characters one and all.

pennyannie

I am more concerned with fake bidders than a group trying to manipulate prices.

DoubleEagle59

<< <i>I am more concerned with fake bidders than a group trying to manipulate prices. >>



Equally as bad.....equally as common.

keets

thanks for helping me make my point, Mark. the scenario outlined by the OP may/may not be illegal and it also highlights the truth that is America. we tend to be a country which governs with laws of degree-------two people can do the same illegal thing and be judged differently when they should be judged equally. i always have to laugh a little when examples like this one are discussed because of the way it tends to galvanize the membership. right is right and wrong is wrong.......................except when the right or wrong person does it and depending on who is affected and to what degree. let me explain.

in DeFalco's scenario we should feel sympathy for the consignor because he's probably gonna lose big money, but we should just 'slough it off" where the little guy in my example is concerned because it's only one coin and maybe it "hurts" him for a few hundred dollars. in my bigger picture the little guy may be the more important of the two since it always seems to be him who gets trampled on, he's the one it's easier to ignore. for your sake, Mark, i hope you aren't a little guy.

Hadleydog

Not only is this unethical but it is unquestionably illegal, at least in the USA.



Mikey, I hope the seller had reserves.

keets

ebaytrader------since you choose to keep the PM function closed i have to respond in the thread.

you missed my point entirely, that point being that if one is illegal than the other is, if one is unethical then the other is. if you feel it's collusion in the OP's example, why would you not feel it's collusion in my example??

adamlaneus

There is a big difference between organizing this behavior...collusion...
It is interesting to read those links to see how it is done on a large scale for a wide variety of items.

And passing on an item because you know your buddy wants it and you want to minimize pain for your buddy...as well as knowing you can always buy one of those items later...not collusion...
Happens all the time. I often refuse to outbid folks who want something worse than I do.

For it to be collusion, you really need an organized effort beforehand.

Simply passing on an auction, for whatever reason, is not collusion. (well, I guess you could tie collusion activity to that 'whatever reason', but what I meant is...acting alone or on the spur of the moment)

keets

so when i'm sitting with my pal the afternoon before the 7PM auction and he asks what Lot #'s i'll be bidding on and i say "105-108-167-184" to which he replies "I was going after 108, but since you'll be bidding on that I'm gonna back off so I don't run the price up for you" we haven't colluded to keep the price down???

interesting.........................

RYK

I think it's unethical, probably illegal, rampant, and probably not prosecutable.

There are other forms of price manipulation and chicanery in the numismatic market which are far more egregious, IMO.

When one builds a coin collection, there is no guarantee that there will be an efficient, clean market on the selling end, which is why it's better to be a hobbyist than an investor.

adamlaneus

<< <i>so when i'm sitting with my pal the afternoon before the 7PM auction and he asks what Lot #'s i'll be bidding on and i say "105-108-167-184" to which he replies "I was going after 108, but since you'll be bidding on that I'm gonna back off so I don't run the price up for you" we haven't colluded to keep the price down???

interesting......................... >>



Well, no. If you had an organized arrangement so that both you and your buddy came away with items you wanted and shared information beforehand to do so, you have colluded.

But in the case you mention, something is missing. You are not ending up with an item. You backed off on an item because you found someone else had interest in it. You lost interest. You passed on an auction. Buyers can do that. Taking an action of not purchasing an item to avoid overheating a thin market is perfectly acceptable, especially when you know another opportunity will arise.

If you and your buddy both wanted either items 108 and 109 but not both, then agreed beforehand that one would purchase 108 and one would purchase 109. Yep, you have colluded.

I just don't see the ethical problem in your argument. It's not unethical to me to pass on an item that I know someone else wants, regardless of how much I know of the situation.

I don't think you can consider 'maybe i'll get another item like that someday for a good price' as part of what just happened when you opted not to outbid your buddy. If the transaction with your buddy also resulted in you getting that same sort of item as your buddy and you both minimized your loss, then I can see the argument. This stuff is for lawyers. I have a headache.

RYK

<< <i>so when i'm sitting with my pal the afternoon before the 7PM auction and he asks what Lot #'s i'll be bidding on and i say "105-108-167-184" to which he replies "I was going after 108, but since you'll be bidding on that I'm gonna back off so I don't run the price up for you" we haven't colluded to keep the price down???

interesting......................... >>



I think that there is a difference between the two circumstances. Your friend is doing you a small courtesy and may/may not have an impact on the final price.

Frankly, if the collectors are getting together and colluding, I am a lot more sympathetic than if dealers are colluding. At least on the surface, the collectors are building their collections and trying to do so at advantageous prices. The dealers are mostly interested in buying low and immediately selling higher. Before you cry "Double standard!", the deck is so completely stacked against the collector in the coin busines that if the collector finally is able to get a break, I am all for it.

mrpotatoheadd

<< <i>I might be bidding against a collector who has been seeking that particular note for years because it bears his grandfather's signature, or it is from the town in which his mother was born, or the bank is one that granted him a mortgage when others refused, etc. Then by all means, let him have the note at a reasonable price. You should neither want to pay an inflated priced [sic] for a note, nor should you want to have a fellow collector pay an inflated price just because you have a less than compelling interest in the same item. >>

I never thought about it that way. I wonder how well it works in reverse:

I might be bidding in an auction including material consigned by a collector who is selling a note which bears his grandfather's signature, or it is from the town in which his mother was born, or the bank is one that granted him a mortgage when others refused, etc. Then by all means, bid the note up to a reasonable price. You should neither want to see the collector realize a reduced price for a note, nor should you want to have a fellow collector pay a lower price even though you have a less than compelling interest in the same item.

What do you think?

ebaytrader

<< <i>

I think that there is a difference between the two circumstances. Your friend is doing you a small courtesy and may/may not have an impact on the final price.

Frankly, if the collectors are getting together and colluding, I am a lot more sympathetic than if dealers are colluding. At least on the surface, the collectors are building their collections and trying to do so at advantageous prices. The dealers are mostly interested in buying low and immediately selling higher. Before you cry "Double standard!", the deck is so completely stacked against the collector in the coin busines that if the collector finally is able to get a break, I am all for it. >>

keets

i swear, we are so entrenched as a Nation with over 200 years of self-righteous hypocrosy that we are doomed to continue to interpret things with our well-honed double standard. with all that said, i will end with perhaps the most truthful thing about honesty, a key ingredient in the hobby, right?? i lie....................

Frankcoins

<< <i>I absolutely feel it's perfectly ethical to do this. Why would anyone want to pay a penny more for any given coin then they need to. If collectors in the same field want to get together to pick and choose different coins so they're not needlessly and wastefully driving up realized prices, then more power to them. As far as the seller/consigner is concerned, of course I feel for them, but that it is just the harsh reality of economics. >>




Auction collusion, also known as bid rigging, is a federal crime punishable by $250,000 fine and 3 years in prison.

Link

Interesting that people are so willing to claim that a consignor bidding on his own items is a crime (which it is not), yet
think nothing is wrong with conspiring to keep a seller from obtaining a fair market price (which IS a crime)

Frankcoins

<< <i>Keets: so when i'm sitting with my pal the afternoon before the 7PM auction and he asks what Lot #'s i'll be bidding on and i say "105-108-167-184" to which he replies "I was going after 108, but since you'll be bidding on that I'm gonna back off so I don't run the price up for you" we haven't colluded to keep the price down???

interesting......................... >>



You don't HAVE to keep bidding at an auction. You can stop bidding for any or no reason, including not wanting to run up the price for a friend. It's a crime if you arrange to not bid on certain items with your buddy, then split the profits that you cheated the seller out of.

MrEureka

You don't HAVE to keep bidding at an auction. You can stop bidding for any or no reason, including not wanting to run up the price for a friend. It's a crime if you arrange to not bid on certain items with your buddy, then split the profits that you cheated the seller out of.

That may be logical, but is it the law?

truthteller

"Not only is this unethical but it is unquestionably illegal, at least in the USA."

Back in the late 1990's, a very prominent US dealer specializing in foreign coins was criminally prosecuted by the Feds because of collusion during an east coast auction.



TRUTH

NHSBaseball

This is an interesting topic. I have had people say that they wouldn't bid against me in an auction I was interested in a couple of times. I did not solicit this, but I did appreciate it and would do the same if someone I knew was going after a coin.

BillJones

In this day and age when there are so many bids that taken over the Internet, is auction collusion really possible?

There was one major auction of the political items, in which I tried to participate, that was basically in two parts. The first part was Internet bidding. After that was done, the highest Internet bids were used as the opening bid for a live floor auction. After trying to bid on a number of items and getting totally blown out the water with insanely high Internet bids, I decided that the format was not worth my time. After you got done beating the Internet bidders and then the floor bidders, it was cheaper to buy the items at full strapping retail prices.

Auction houses can brag about how much they get for their clients, but you need to have someone placing bids and writing checks. Auction houses don’t seem to care about buyers. My experience has been that I prefer buying at shows to messing with Internet auctions where you can’t see the items before you bid on them and then have to put up with shills and yahoo bidders. (No Internet site intended.)

DoubleEagle59

My experience has been that I prefer buying at shows to messing with Internet auctions where you can’t see the items before you bid on them and then have to put up with shills and yahoo bidders. (No Internet site intended.)

Last ten years buying coins, probably 95% has been at coin shows and coin stores and 5% at auctions.

Just too darn competitive and too expensive at auctions. I do so much better at shows.

jhdfla

<< <i>no worse than a "respected dealer" bad mouthing a collection prior to auction and than bidding on items >>



I personally know of instances where this has happened, and it involved well know supposedly "respectable" individuals. This is worse IMHO than collusion between several collectors discussing what they are going to bid on in an upcoming auction.

It would have to be a very specialized or thinly traded series for this to happen successfully, there are too many series which are so popular it would be virtually impossible to limit bidding on, such as bust halves, with the major auction houses expanding their base to allow internet bidding and the like.

john

DoubleEagle59

<< <i>

<< <i>no worse than a "respected dealer" bad mouthing a collection prior to auction and than bidding on items >>



I personally know of instances where this has happened, and it involved well know supposedly "respectable" individuals. This is worse IMHO than collusion between several collectors discussing what they are going to bid on in an upcoming auction.

It would have to be a very specialized or thinly traded series for this to happen successfully, there are too many series which are so popular it would be virtually impossible to limit bidding on, such as bust halves, with the major auction houses expanding their base to allow internet bidding and the like.

john >>



I agree...it is worse.

coingame2000

<< <i>

<< <i>I absolutely feel it's perfectly ethical to do this. Why would anyone want to pay a penny more for any given coin then they need to. If collectors in the same field want to get together to pick and choose different coins so they're not needlessly and wastefully driving up realized prices, then more power to them. As far as the seller/consigner is concerned, of course I feel for them, but that it is just the harsh reality of economics. >>




Auction collusion, also known as bid rigging, is a federal crime punishable by $250,000 fine and 3 years in prison.

Link

Interesting that people are so willing to claim that a consignor bidding on his own items is a crime (which it is not), yet
think nothing is wrong with conspiring to keep a seller from obtaining a fair market price (which IS a crime) >>



Frank: Thanks for the link and your thoughtful comments.

Mike