[Archive]

Posted By: Corey R. Shanus

The reason auction houses don't do that is because it takes away one of their weapons to induce higher bids--the perception that house bids up to the reserve are in fact real bids, thus creating more interest in the item. What a person bids depends to some degree on that person's perception of how much other interest there is in the lot. For example, suppose you aren't sure you're willing to bid X (the hidden reserve) for the item. You could be influenced to bid that high if you felt that all the "bids" the auctioneer is reeling off as he slowly ascends to X are in fact real bids. It's the human element coming into play. After all, if other people have an interest in the item at a level close to X, then that information could make you reassess your value of the lot and induce you to place a higher bid than you otherwise would. The term I used to describe this practice in the other thread was legalized fraud. The practice is by allowed law, but because its purpose is to induce bidders to believe something that the auction house knows is not true (genuine interest at those house bid levels), which information is material to a bidder's decision how high to bid, IMO that constitutes fraud.