Fraud and Free Markets
By David Sharp
Most people who have had any acquaintance with auctions have come across the
term " vendor bid ". Since Melbourne is reputedly the auction capital of
the world, with large numbers of houses and other property sold weekly by
auction this probably includes many if not most of Melbourne's adult
population. To a greater or lesser extent they understand that a vendor bid
is a method whereby the vendor during the course of an auction makes known
to the assembled potential buyers that the figure then indicated will not
suffice at that stage of the auction to buy the property.
Provided that the vendor in announcing the auction has retained the right to
withdraw the property from sale after the auction has commenced or that any
sale is declared to be subject to an undisclosed reserve price being
reached, there is nothing inherently wrong in permitting the vendor to give
such an indication on one or more occasions during the course of the
auction. Such a pronouncement can only facilitate the market process since
it assists potential buyers to determine realistically what they will need
to bid if they are to achieve the goal of purchasing from the vendor
whatever it is that is being offered for sale.
Vendor bid as a term is itself somewhat misleading since the primary meaning
of the word bid is to offer to buy. One thing the vendor is not doing at
that stage is offering to buy. He has no intention for instance of paying
stamp duty on any sale to himself. Rather the word bid in this instance is
used in another somewhat old-fashioned sense of giving an indication or
direction as in " I bid you go " or " Please do as I bid ". What the vendor
is doing with a vendor bid is bidding [ in the sense of indicating or
directing ] would-be purchasers to bid [in the sense of offering to buy ] a
greater figure. Although a potential thereby exists for confusion, the term
itself is an accepted one and the English language does not readily provide
one less confusing which is at the same time as catchy and convenient. Essentially, provided that the indication from the vendor is clearly identified as coming from the vendor there is no deception of the market.
Its function is to inform and it is perfectly proper.
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