Bid rigging in the art and antiques world has always been blamed on buyer collusion. It seems that dealers are fair game for such accusations, whether it’s a ring format or having two or more competitors agreeing to restrict their bidding activity. There is however, always the possibility that there could be another bidder to upset the plan. But that opportunity is routinely blunted by the power of a reserve, and a secret one at that.
While I don’t like the idea of a reserve price (without it you get real market valuation), it does help set a floor price. But a secret reserve is a whole different ball game. The secret reserve is where collusion between two parties, the seller and auctioneer, conspire against a buyer by acknowledging their bid and manipulating the buyer to bid more with fraudulent deception.
Sham or “chandelier” bidding is the generally accepted method for moving the bidding up to the secret reserve; it’s how the auctioneer perpetrates a form of bid rigging. The auctioneer’s agreement with the seller makes this all possible, and with the auctioneer’s vested interest in the guaranteed buyer’s premium income, they have a strong motivation for complicity.
Antitrust has been a big part of American economic history. Certainly the trust busters of the Theodore Roosevelt generation knew a thing or two about price rigging and manipulation. Government antitrust efforts usually are meant to send a message to an industry it deems has systemic problems with pricing, usually from manipulation or fraud.
Dishonesty and deception to gain a price advantage is just as manipulative as colluding buyers, but the “fix” is already in place before the buyer can get his chance. In the art and antiques industry the auctioneer has now built this “fix” into their methods of operation. It is also a reason why we have so little price transparency; items that don’t reach a disclosed reserve are priced wrong; with a secret reserve you really don’t know if the price is being manipulated by it.
If the government were to look into how deception plays such an integral part of the pricing format in this industry, I would think that the case for change would be obvious. A disclosed reserve makes it a level playing field. Through government antitrust measures, the agreement between the seller/auctioneer to collude with deception should warrant action for a publicly known minimum reserve price. Unfortunately, for that to happen the government will have to battle against the Christie’s/Sotheby’s duopoly, and their political connections and firepower.