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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