Posted By:
ScottThere is a lot of economic theory about auctions and auction behavoir...unfortunately I've lost most of those brain cells over the years.
the last post is exactly correct. The auction house placing bids gives the impression that there is at least one other BUYER that is willing to pay something close to what the real bidder is willing to pay. Auctions attempt to reach the highest price on an individual's demand curve. An individual's demand curve is influenced by many things and certainly the perceived fact that someone else is also willing to pay a similar price can influence that curve.
The law in essense allows the auction house to use a reserve and create the impression of other buyers...when in fact all the reserve is..is a point on the supply curve that the seller has picked, below which he/she will get more satification from retaining ownership of the item than satifaction from the money they would receive from selling.
Its the law, but it is deceiving to individual buyers and it would be a good law to amend to state that reserves can be placed, but must be announced prior to commencing the auction.