Auctions and Collusion
Auctions will always be susceptible to manipulation from collusion. In a fixed price scenario, the sale price is determined only by the seller and the buyer – a truly arms-length scenario. However, in an auction scenario, the sale price is determined by the seller, the buyer and the second highest bidder. The second highest bidder has no risk, allowing: (1) the seller and the second highest bidder to collude to raise the hammer price or (2) the buyer and the would-be second highest bidder to collude to lower the hammer price. Case 1 is the classic shill bidding scenario. In Case 2, consider a case where two “friends” who have the same collecting interests agree that one of them will bid in a particular auction and the other will refrain, thereby reducing the hammer price.
Even though I love winning auctions below my “max bid” as much as the next guy, I believe this collusion is why eBay has trended toward a fixed pricing model and why that is probably where things are likely trending long term.
Unless someone can come-up with a solution to the collusion problem, of course.
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