Why is shill bidding so bad?

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Posted By: warshawlaw

Legal: The California Civil Code makes shill bidding illegal.

Moral: Shill bidding is wrong because it involves collusion between seller and shiller to take advantage of a legitimate buyer by telling the buyer that the market price on a card is a certain price when it is not.

I have no problem with people partnering up on auction lots. If they are not going to bid otherwise, so much the better for the auctioneer and the seller. We share investments in all other kinds of stuff (land, cars, etc.) so why not in cards?

I do not agree that colluding not to bid on an item is the moral equivalent of shill bidding to run up the price. A shill bid is an act that has an absolute effect on the auction; the price goes up, no matter what else transpires. It is also an active effort on the part of the auctioneer to fish for the maximum bid of the high bidder and force him to pay that maximum. Refraining from bidding is an omission that does not force anyone to pay more for an item. If an item is way below market and two guys agree that one will not bid on it against the other, the likelihood is that a third party will come in and scoop up the bargain item anyhow, screwing the colluders. If no one else comes along and bids, the item has probably reached a market level or had problems that led others away from it. Remember also that the auctioneer has plenary control over the auction. If he wants a certain return on the auction, he can either set the minimum at that level or set a reserve that must be met by the bidders. Most people I've talked with think that if the auctioneer is dumb enough to set the minimum at a fraction of value with no reserve, he gets what he deserves if the item sells for less than hoped. Finally, a shill bid inflates the reported result of the auction, even if the shiller takes the lot and no money ever changes hands. This in turn skews market perceptions of the auction's results when the auctioneer reports them to the hobby press and also frequently winds up in publicity and advertising that induces consignors to send their items to the auctioneers who appear to have been so successful in the past. Shill bidding is just way more pernicious and destructive than collusive non-bidding.