Some industries can take advantage of elaborate financial and legal loopholes and do very well. The auction business in the fine and decorative arts world, works on that principal. Sham bidding is performed on the buying public to deceptively protect the non-disclosed amount of the secret reserve price. The New York State Legislature is considering a law to prevent this ruse.
The fraud that the auctioneer’s perpetrate on the consumer starts when they offer an item below the reserve, and then acknowledge bids which they know they cannot accept; they cannot accept your bid even though they prod you for it. This is done to create a false sense of competition to manipulate the price up; for no other reason. The ability to recognize bona fide bids and use them to pump up the price against the unknown reserve is cause for a review of the practice. This is not something that should be a generally accepted practice, in any industry.
The failure to disclose the amount of the reserve is like not including information from any potential purchaser. However, conditions of the sale are one thing but price should be transparent, especially in the nature of a “public” auction. In a way it’s like a dealer saying “make be an offer” and not asking a price, with the dealer knowing what he wants, but not disclosing his top price, his starting price for negotiation. That’s the big difference between a dealer vs. and auctioneer. By law (NYC Consumer Protection) art and antiques dealers should post a price on their items for sale. It’s the dealer disclosing the “ceiling” reserve. No theatrics here.
The auction industry has this distinct advantage that was never meant to be. Their ability to not disclosing the “selling/floor” reserve price is protected by the sham bidding process. In conjunction with a non-negotiable buyer’s premium, which can now be up to 25% (recently instituted by Christie’s for items selling for less the $20,000.00), it offers a devastating combination of market control and manipulation of both buyers and sellers for only their benefit. Don’t be seduced by their “representing the seller” position. It is the seller’s merchandise that is the vehicle for them to employ sham bidding. They then manipulate the bidding to get a higher price and therefore a higher non-negotiable buyer’s premium that they keep.
The deception created by sham bidding is what makes this industry a joke. Does the New York Stock Exchange employ such a technique, how about government bond auctions? They have a simple bid/ask price disclosure. Auctioneers, wearing a tie and jacket, and ensconced on a fancy podium (and most effective with a good English accent) can lead and cajole a crowd to bid. That is their job. With the efficient use of sham bidding, in the context of a fast moving cadence of coaxing bids, the auctioneer can effectively make a prospective bidder feel like they are competing against another bidder, when in reality they aren’t.
It’s an advantage that any business would love to have, and it’s legal only in my industry.