After Sotheby’s announced their last quarterly financial statements, CEO Bill Ruprecht explained that “We believe that these results validate our strategy, demonstrate the significant operating leverage in our business model and highlight our ability to execute in a strong market”. With a robust 12 month income of over $170 million dollars on sales revenue of $807 millions dollars, he should be crowing.  But read this boast carefully.


These results mirror a key aspect of the Sotheby’s/Christie’ duopoly, namely the “significant operating leverage” their business model has been able to maintain.  That leverage has many factors that are inherent with an advantage that no one or group of concerns in the industry can approach.  A duopoly that raises prices in unison and with impunity should be able to execute; the strategy of working with your only “competitor” is a guaranteed fix for unobstructed control.  I like to think I have a pretty good idea of what is going on with the actions of the duopoly, but I must have blinked when Sotheby’s expeditiously matched Christie’s new higher 25% buyer’s premium on items under $20,000.00.  I haven’t heard of a third auctioneer stepping up yet; it will take some time for another auctioneer to think they too are on that tier which can require a buyer to pay it.


The subtleties of this collusion are etched in their actions, as tit for tat, is really tit for tit when it comes to the success of the duopoly. But looking at their financial results even closer reveals a net profit margin of 20.77%, which illustrates that the buyer’s premium is the principal profit area, not consignment seller commissions.  But who’s paying for what services????  The numbers tell you it’s the buyer.  Their (the duopoly’s) profit strategy is build around this non-negotiable income and the key to that is their industry standard sham/chandelier bidding deception tactic perpetrated on the buyer (you know, bidding against the secret reserve) to artificially raise the bids.  Oh, and don’t forget that this strong profit margin is without actually ever owning inventory; the revenue is from offering a highly non-competitive “service” to the buyer.  It’s not like making a car or computer, or adding value to tangible asset.


However, they do perform a necessary service that does create a form of liquidity in the market.  I would be naive to think that it isn’t necessary and crucial for the auction process to help define a value for an item.  After all an auction, according to the Encarta Dictionary is the “sale of goods or property at which intending buyers bid against one another for individual items, each of which is sold to the bidder offering the highest price.” Unfortunately, this duopoly’s auction definition has been “lost in translation” to validate their business plan.

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