Since 1997, the U.S. Department of Justice has carried out an antitrust investigation of Sotheby's and...

 

 

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Since 1997, the U.S. Department of Justice has carried out an antitrust investigation of Sotheby's and Christie's on the suspicion that the two companies stifled competition by colluding on a host of business practices. It was revealed later that the two auction houses cooperated to set identical commission rates for buyers in 1992 and for sellers in 1995. They also agreed to exchange lists of preferred customers who were not charged a seller's fee or were charged lower fees because their collections were so eagerly sought by the auction houses. Furthermore, the two companies came up with ways of monitoring cach other for possible cheating, and held meetings at which they discussed the issue of cheating. On September 22, 2000, Sotheby's and Christie's agreed to pay $512 million in total and $256 million for each firm to settle claims that they cheated buyers and sellers dating back to 1992. Interestingly, the settlement came after negotiations in which each auction house tried to be the first to strike an agreement in the hope that the other would be forced to accept a worse deal. ("Auction houses disclose secret data." May 13, 2000, New York Times On-line Edition. "Art auction houses agree to pay $512 million in price-fixing case." September 23, 2000, New York Times On-line Edition. "Files of ex-Christie's chief fuel inquiry into art auction." October 8, 2000, New York Times On-line Edition.) Analyze how the two auction houses would compete for both buyers and sellers in the absence of secret agreements. а. Provision of antitrust law allows one of the participants in a scheme to receive amnesty in exchange for coming forward and disclosing everything it knows about the illegal activities. Explain how this provision affects the strategies of the two auction houses during the criminal investigation. Each auction house has the option of making up to $50 million of its payment in certificates to sellers, which would be transferable and could be used toward reducing commission costs on future transactions. Is it a good deal or bad deal for the auction houses compared with cash payments, and why? b. с. Since 1997, the U.S. Department of Justice has carried out an antitrust investigation of Sotheby's and Christie's on the suspicion that the two companies stifled competition by colluding on a host of business practices. It was revealed later that the two auction houses cooperated to set identical commission rates for buyers in 1992 and for sellers in 1995. They also agreed to exchange lists of preferred customers who were not charged a seller's fee or were charged lower fees because their collections were so eagerly sought by the auction houses. Furthermore, the two companies came up with ways of monitoring cach other for possible cheating, and held meetings at which they discussed the issue of cheating. On September 22, 2000, Sotheby's and Christie's agreed to pay $512 million in total and $256 million for each firm to settle claims that they cheated buyers and sellers dating back to 1992. Interestingly, the settlement came after negotiations in which each auction house tried to be the first to strike an agreement in the hope that the other would be forced to accept a worse deal. ("Auction houses disclose secret data." May 13, 2000, New York Times On-line Edition. "Art auction houses agree to pay $512 million in price-fixing case." September 23, 2000, New York Times On-line Edition. "Files of ex-Christie's chief fuel inquiry into art auction." October 8, 2000, New York Times On-line Edition.) Analyze how the two auction houses would compete for both buyers and sellers in the absence of secret agreements. а. Provision of antitrust law allows one of the participants in a scheme to receive amnesty in exchange for coming forward and disclosing everything it knows about the illegal activities. Explain how this provision affects the strategies of the two auction houses during the criminal investigation. Each auction house has the option of making up to $50 million of its payment in certificates to sellers, which would be transferable and could be used toward reducing commission costs on future transactions. Is it a good deal or bad deal for the auction houses compared with cash payments, and why? b. с.

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Answer Description 1 i In the absence of secret agreements two auction houses would not know the com... View the full answer