How do you freeze out a major competitor at auction without crossing the line to collusion?
Longacre
Posts: 16,717 ✭✭✭
In another thread, I asked why a major dealer (“requesting dealer”) would use another major dealer (“bidding dealer”) to bid for him at an auction. In one of the responses, a prominent member of these boards made the following statement: “to take out your major competitor.” I thought this answer was intriguing.
In response, an excessively prominent member of these boards made the following statement: “That sounds good in theory. But if that competitor has a client for the coin and/or wants to try to buy it for inventory (in order to make for than a minimal profit on it), he's not going to forgo those opportunities for a relatively small commission.”
For purposes of our discussion, let’s assume that this excessively prominent member’s comments are correct.
Please discuss:
(1) What if the requesting dealer told the bidding dealer that if the bidding dealer did not bid on the coin for inventory or another client, then the requesting dealer would pay him x%, which is higher than the standard bidding commission, but less than the profit on the flip to someone else?
(2) Would this arrangement cause the selling price of the coin at auction to be depressed, relative to a price if there had not been such an arrangement?
(3) Would this be considered a good practice, or is it too close to collusion?
(4) What else can be done to protect the People’s interest in the auction process?
In response, an excessively prominent member of these boards made the following statement: “That sounds good in theory. But if that competitor has a client for the coin and/or wants to try to buy it for inventory (in order to make for than a minimal profit on it), he's not going to forgo those opportunities for a relatively small commission.”
For purposes of our discussion, let’s assume that this excessively prominent member’s comments are correct.
Please discuss:
(1) What if the requesting dealer told the bidding dealer that if the bidding dealer did not bid on the coin for inventory or another client, then the requesting dealer would pay him x%, which is higher than the standard bidding commission, but less than the profit on the flip to someone else?
(2) Would this arrangement cause the selling price of the coin at auction to be depressed, relative to a price if there had not been such an arrangement?
(3) Would this be considered a good practice, or is it too close to collusion?
(4) What else can be done to protect the People’s interest in the auction process?
Always took candy from strangers
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
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Enjoy!
“In the mid 20th century Hard Times Tokens became a passion the passion for many leading numismatists, with John J. Ford, Jr. and Donald Miller perhaps being the best known. At a memorable New Netherlands auction in the 1950’s a collection of Hard Times Tokens was scheduled to cross the auction block, including rare varieties of Low-1, with the portrait of Jackson. A catalog was prepared by Walter Breen and John Ford of New Netherlands Coin Company, of which Ford was co-owner. The sale was held on the rooftop facility of the New Weston Hotel in New York City, in an assembly room, next to which there was a bar. Miller well lubricated an with a fighting spirit, was set to capture a number of rarities for his own account, while Ford made it known that he was going to be the leading buyer. On the terrace near the bar Miller grabbed Ford and pushed him partially over the railing, high above the streets below. The present writer (QDB) and another bystander grabbed Miller and pulled him away, much to Ford’s relief. Others rushed to hold Miller, and eventually calmed down. The sale proceeded, and record prices where set.”
If I see my collector or dealer bud bidding on something and decide that I will not bid against them, because I do not want to unnecessarily run them up, is that collusion?
Or if I see a well-known specialist bidding on something which really belongs in their collection for historical reasons, and duck out because of that, is that collusion?
How about if I agree with one person, before the auction, that I will not bid on something? Now, change the number from one to ten.
I'd love to hear from the auction houses on this. I suspect rules vary from state to state.
<< <i>Aren't we assuming that every dealer always avoids unethical business practices whereby collusion is deemed unethical even though the business is fraught with unethical parties as in any business whether regulated or not. >>
I see no such assumption in this thread.
The collusion line is a fine one. If a would-be bidder lays off of a coin, simply in order to help a friend and isn't compensated for doing so, I don't think that amounts to collusion. But once the favor is returned in a like manner and/or the non-bidder is compensated financially, I believe that the collusion threshold has been reached.
I think the example of a bidder noticing a buddy or a fellow dealer bidding on an item and then they decide to walk away and not bid against a friend or colleague is not collusion....that's more like camaraderie
This hobby will be able to stop all coin doctors everywhere, before collusion at auctions is even slowed down. JMHO
Empty Nest Collection
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
There are always ways around this if you are shifty enough. But the dealer community is very small and it's very easy to get caught. Then you are a transactional pariah.
A lot of specialist collectors know each other too.
I'm not going to go into every nuanced scenario. I'll respond to them as they are presented.
Collector/dealer Dave calls collector/dealer Tom and says he wants representation. Dave gives him the amount ($50K) and says "Tom, execute my bid, I won't lay off for anyone"
Next day collector/dealer Mark calls and says the same thing. His amount is $65K
.
Auction action: agent Tom wins the bid at 45K using his own bidding paddle. The auctioneer calls out "bidder 225 at $45K" and Agent Tom replies "No, make that $52.5K to Bidder 888".
If Tom tells Mark he can't bid for him due to an ethical conflict, and this is sometimes done, he telegraphs he has another bid, either for himself or another. Thus Mark could tell another agent "watch Tom, you can stretch a bit if he's bidding on the lot." This puts Dave or Tom at a disadvantage. Nothing is telegraphed using my proposed methodology. I learned it from an expert collector/dealer, AJT, who often finds himself in ths position. If Tom wants the lot for himself, he pays $67.5K. Maybe he even uses yet another paddle # so he doesn't piss off Dave or Mark, who may be in the audience or watching live or whatever. You get it. Or he tells them. They'll get it.
If Tom wants to go to school on Dave's bid and top it, it's a fine point, but he'd be crazy to bid below Dave's limit. Word WILL get out.
We're talking about freezing out, which is competitve, not collusion, which is cooperative. That's another thread.
Like I said, it's a small community. Anyone want to lose a customer or trading partner for life over 1 coin?
NGC MS67 half dime
roadrunner
Coins auctions and real estate foreclosure auctions. One retail, the other wholesale. The bidders at both are, of course, motivated by the same things. Bidders at both auctions can be neophytes and seasoned pros, both honorable, dishonorable and criminal. I am sure very creative, imaginative, bold, questionable, creepy and tightrope walking on a razor thin thread of a line things happen in both arenas. Like international relations, alliances turn quickly and "interests" exist instead of friendships.
I have heard of the body of a guy who was an auctioneer crying foreclosure sales was found in an estuary, a day or so after he stopped showing up for work. Suspicious circumstances abounded.
Have not heard of dead bodies connected to coin auctions yet; but you never know.
<< <i>Most of what I see as "collusion" are dealer consortiums that team up at the auctions to buy more cheaply. They decide who will bid on each coin so competition is lessened. And if they can't agree to lay off then they will all go in together on a lot and split it 4 ways for example. I recall seeing that technique in action at a Goldberg auction a few years back. An absolutely wonderful NGC toner 1860 MS67+ seated half dime in an older holder as I recall opened for about 50% of type coin market value and didn't budge. I was so shocked I didn't bid even though I had a buy bid at 2X that level on my sheet. I thought the coin was gorgeous and PQ. At that point I'm figuring it must be a wonderful AT job for everyone in the room to be off the coin. So after it sells for about the opening bid I ask the dealer behind me what was up with that? He said a few of the guys got together on that lot so as not to bid it up. They felt it was a great MS68 upgrade candidate. Generic bid at the time was $2350 and I was told that the group's buy bid on that lot was $3250. Collusion? Maybe not in court but certainly from my point of view. You only need to pull a few out of an auction hall to seriously retard the prices.
NGC MS67 half dime
roadrunner >>
Been there, seen that done. I call it a cartel.
It unquestionable has a great impact at auctions in real life. Perhaps with increasing bids from the Internet bringing in more bids will help sellers out.
I usually have a good idea which Dealers will be putting in bids looking for inventory on the items I have an interest. Sometimes while I'm sitting at the Auction, I'll tell the Dealer to represent me for 5% of which they normally agree. That way we're not bidding it up, and I get a far better price for only 5%, and a Dealer that's content because he made a little juice for nothing. It's not collusion, but certainly hurts the Seller. It's hard to have an auction that's completely fair when so many players know each other.