Morality, legality and auction collusion

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Man! Oz hit the nail on the head. He really did! The pool of bidders is so much larger larger than what we are talking about here. Sure, if there were only a few people bidding in any auction at any time there would be a noticeable outcome. But with the countless thousands out there who might possibly bid in any particular auction this discussion becomes irrelevant.

There are so many factors we cant even begin to know or understand, especially when we consider that each and every auction is different. Each dealer, each offering, the quality of the coins, the quality of the photographs etc, who is looking at that particular point in time. The list goes on and really is endless. Its what makes auctions interesting for the buyer (but not always so for the seller).

In the end it all comes down to what any one bidder might be willing to pay for any one lot at any given point in time and venue. I may be disappointed (as a seller) to see coin "XYZ" hammer for $any amount. But if you are the seller it is your responsibility to ensure that the opening bid will be the minimum amount that you are willing to accept. Anything above that will be gravy.

I say these things both as a seller and a buyer. I buy for various reasons, but I am not emotional about it. If I dont get a lot I dont care. Someone else was willing to pay more than I was and I just dont care. As a seller I start the bidding at the lowest amount I am willing to accept and will be happy with that. End of story.

One last thing I should point out. In this whole discussion about collusion, well, it seems to point out to me that if it was happening on a large basis many people should be getting huge bargains. I mean, if dealer and collectors were doing this then I should be able to come in at the last moments of the auction and get lots for one or more increments above those who are supposedly colluding together.

 

One clarification here. The law applies per se, which means you cannot defend yourself by saying your bid agreement didn't actually make much much difference because it was only two people. There is no debate on that point. Two local contractors agreeing their bids on government contracts can't say "but there are so many other potential bidders out there". If you made an agreement that violates this law, consequence is irrelevant.

And actually two people agreeing absolutely does have an effect. Look at how many lots are sold to a single bid, or two bids, or unsold. That gives an impression of market depth. The market for Dutch old masters soared when literally three or four deep-pocketed collectors were competing hard. Now they're less active, prices are falling. Plenty of other examples where only a few bidders have made a big difference.

Finally a point of happy agreement is that we can all agree this isn't a sinister plot and everyone is trying to do the right thing as they understand it, even if we have different views of the ethics. But even if you disagree with me on the law, I hope the debate has at least encouraged a degree of caution in public posts. Even if I'm wrong, I'm probably not the only one thinking along these lines.

That's in reply to a number of posts that appeared overnight, including @Sallent @h8modern @Ken Dorney @IdesOfMarch01

 

i'm not an expert, but i'd say this is what the law on bid rigging applies to, gov. contracts, food stuffs, utilities and the like for the general populace, not a few peeps talking about buying a coin, regardless of what their plans are for the coin after the purchase. there are some things in some markets than simply cannot be controlled and world wide coin auctions fall into that category i would think. a laissez-faire so to speak, it's still the golden rule.. the person with the gold makes the rules.

 

Interesting point. I *think* some jurisdictions require these arrangements to be reported to the auctioneer in advance. Certainly it's normal and accepted practice in UK/US. Buying one lot together to split up and resell is certainly fine, but buying separate lots and agreeing to split between you might start to look like a ring. In the high-end art market there are sometimes huge consortia of dealers ... who then can't agree on sale terms! A Rembrandt was withdrawn from auction recently because some of the owners hadn't even been informed of the sale!

 

That was raised earlier in the thread. The law explicitly applies to individual and doesn't carve out any markets. It obviously isn't a priority for law enforcement, but there are no good grounds for assuming a market will be exempt just because it's small or hard to enforce.

 

My reply is that an auction isn't relevantly like a type of bicycle race. If you have 30 people competing independently for a coin, it's an auction (we agree). If you have 10 "teams" of three friends competing independently for a coin... it's still an auction. (Here's one place where Ken and Sallent's important point clearly applies.)

Reply 2: Kant's "derive a contradiction" procedure to figure out right from wrong isn't valid in the first place. In fact, it's extremely bizarre.

I don't see how my logic is tortured. In a consequentialist analysis comparing two actions, you look at whether the two actions are expected to generate a different amount of well being in total. The better action is the one that's expected to generate a higher total amount of well being. In comparing the choice of cooperating with a few friends vs. avoiding such cooperation, there's no difference in the expected total amount of well being generated... it's just differently distributed. So there's no moral reason to choose one over the other. (Consequentialism doesn't privilege other peoples' well being over one's own.)

Of course, it may be that in particular cases it's slightly morally better not to cooperate, or slightly morally better to cooperate... or even a lot better. (E.g. the U.S. consignor needs the money to fund their child's cancer operation.) But in general, the participants are not in a position to judge this. They don't have enough information. Given the information we have, there's no moral difference between choosing to cooperate and choosing not to, no difference in the expected value of the consequences overall.

Note I'm not suggesting that cooperation is the morally best action overall. The morally best action overall (on a consequentialist analysis) is for all of us to sell all our coins and other worldly possessions, donate all that money, and volunteer our time towards famine relief (or something similar)!! But we were just comparing the two options: cooperating or not.

 

Well, yes, of course!! But then you blew it:

Now HERE is the REAL moral turpitude, folks! Curtisimo still hasn't removed that owl from its slab!!! <gasp!!>

 

Forgot to include a relevant coin photo (not my coin).

 

Consequentialism is conventionally divided into act based or rule based. That might be a helpful way of thinking about this case. Rule based would look at how best to establish a fair market for all participants, buyers and sellers. Some people have argued that sellers should wise up and realise they might not get more than the reserve and buyers might collude. That doesn't wash with me. I think sellers are entitled to expect a fair market. Assessing acts is a bit different and will see more shades of grey. But maybe assessing acts makes it easier to justify to ourselves behaviour that is especially beneficial to us. I wonder how a 'sellers' forum' rather than collectors' forum would discuss the issue!

 

I would imagine the discussion would be more one-sided given that collectors inhabiting a collectors' forum are sometimes sellers as often as they are buyers. I don't think it's a case of us against them here.

In fact, some members have already stated that they as sellers wouldn't have an issue at all with groups of buyers cooperating with each other when considering bidding on coins they're selling. I wouldn't have an issue either.

Now, on the other hand, speaking strictly from a buyers perspective, I wish there were more transparency from auction houses when it comes to their rules regarding sellers bidding on their own lots as well as the auction houses bidding on lots for themselves in competition with other bidders.

A rule based system to establish a fair market would be great. Just make sure the rules are clearly stated so we can each determine for ourselves which we think is fair and participate accordingly.

 

Good point. Also, my pre-auction discussions with various friends must not be very effective because my win rate is only ~20%. I guess I'm just a failure as a criminal

I'd be shocked if those single-bid lots are sold to someone whose auction buddies stepped away from bidding. Those single-bid coins are generally common, problematic, over-estimated, or just not very desirable at that moment in time. Yes, I know, I know-- this doesn't negate or excuse what you deem immoral and illegal collusion. And again... the auction houses and consignors can set minimum bids, reserve prices, and in some cases allow the consignor and/or auction house to bid up his or her own lots in an effort to achieve their desired prices.

I think @Curtisimo's graphic depiction on p. 3 accurately summarizes this entire thread .

 

A couple of points from a somewhat different perspective: A number of people have stressed, correctly for the most part, that the 21st century Internet-based market is quite large compared to even the relatively recent past and is unlikely to be affected much or at all by a few people discussing bids on a few lots. That's an unobjectionable position regarding--say--an attractive and problem-free but not "special" tetradrachm of Alexander. The price of that hypothetical coin can be reliably predicted within pretty narrow parameters and isn't going to be changed much by a couple of friendly discussions.

Matters are rather different in more rarefied strata of the ancient coin market. I think a lot of Coin Talk members might be surprised to learn how thin that market really is, how dramatically it can be affected by the actions of just a few collectors. A family emergency--say--or a cancelled flight or a drop in the price of oil in Russia can have substantial repercussions. Imagine a rare Imperatorial aureus, maybe the sixth known example and the second in private hands (again, a hypothetical; I've no particular coin in mind), estimated at 50,000 CH at NAC. That coin might hammer at 250,000 francs if all prospective bidders are active, but at "only" 100,000 CH if a single likely buyer missed the auction. I think everyone can agree that's a significant difference. In this example the auction has been affected by circumstances, but clearly pre-auction discussions could end in the same result. The takeaway point is that a few people can affect the market in a major way.

I can give a couple of personal examples, rather lower in the hierarchy, lol. There were some choice and rare victoriati in the last Triton, of broad desirability at a certain price level but "worth" substantially more than that price to only a handful of collectors. I had a pretty good idea who the strongest bidders on these coins were likely to be. Three lots in particular hammered at a combined $22,500. I bid on all of these and won none of them. A couple of emails (which I consciously declined to send, after considerable thought) could have changed this result substantially: maybe $15,000 combined hammer and at least one of these coins in my collection. I might have deferred to a friend on lots 1 and 3 and been given a green light on lot 2 in return. Not as dramatic a difference as in my first example, but still significant.

When I sold my RR imitations collection a few years ago, I know for a fact that several people got together beforehand and "arranged" who would bid on which lot. Obviously, other bidders were free to compete as well and many did, but in the end this group won most of the coins in the collection. Now, this was a distinctly benign "cabal" of friends of mine which existed mostly to protect my interests by ensuring that all lots would sell. That did happen in the end and I was entirely satisfied with the overall results of the sale. I'm not complaining at all. They were mostly establishing a base price, not a ceiling. Still, a few particular coins which I considered the best, most attractive and/or interesting pieces in the collection realized around estimate, rather less than I expected them to bring. It would've been fun to see what might've happened if there had been no prior arrangement and everyone had competed for those lots.

One last point. There are real ethical issues involved in this stuff which I've been wrestling with for a long time. I don't think the answer is as black and white or as easily resolved as a majority of posters here seem to. The legal "issue" is a red herring though, entirely imaginary; no one is ever going to be arrested for having a few discussions with their friends.

Phil Davis

 

Very good points. I don't think people will be arrested either. But (& it's a big but) there are people in jail for market manipulation who thought the same. I can think of a few white collar inmates who were convicted on thinner charges. And some people HATE coin collectors as looters and terrorist financiers. It's a really small risk, of course. But I wrote the original post because I was getting concerned by posts that I perceived were going further and further over the line.

 

Agree 100%.

In no way, shape, or form do I think discussing bids at upcoming coin auctions is unethical. If/when I auction my coins, I couldn't care less if some potential bidders discuss their strategies for bidding on them.

I'm completely mystified as to why this behavior is considered unethical from any objective point of view.

 

It always makes me nervous when someone writes about "being entitled."

You're entitled to whatever the terms of the auction specify. Period.

When you consign a coin to an auction, you have certain rights and expectations as specified in the terms and conditions for consignors. That's it. If you don't like the terms, you can (1) choose not to consign your coins to that auction, (2) attempt to change the auction's terms and conditions so that they're closer to what you want, or (3)... the list is endless.

Note that I'm not saying I don't believe in entitlements -- there are plenty of WRITTEN entitlements in life (U.S. Medicare immediately comes to mind) that are well specified. In those cases, use of the phrase "entitled to" is entirely appropriate. What concerns me is when individuals feel "entitled to" unwritten (and in many case unreasonable) expectations about their situation.

 

In any auction house terms and conditions it will refer to governing law. The governing law protects markets from practices like fraud, cartels and bid rigging. It also provides a framework for enforcing contracts.

 

Of course. I didn't write that local laws were excluded from auction terms. But this just brings us back to whether or not the Sherman Act applies to individuals discussing bids for an auction, which can only be definitively answered by a knowledgeable lawyer.

 

Having been A auctioneer in the coin business for over 30 years, I have known about some "knockout" sale activities that have taken place in sales, mostly many years ago,before the Feds took great interest in this auction activity. The Feds have acted on collusion in auctions in NY and other venues, convicting numerous jewelry and antique dealers big time. The art industry and machinery auctions were also targets of the law. Most people were previously not aware it was illlegal when they did it, because it had been such a common practice for many years. After the big Fed push was publicized the activity all but disappeared. Now the coin business is so big and profit driven and has Internet bidding that such deals can rarely affect most auctions.