The recent verdict for criminal price-fixing against 76-year-old William Taubman, the former CEO of Sotheby's, has destabilized the world of high-priced auctions.  In fact, media reaction demonstrates most people are happy that a wealthy executive in a "snooty" business has received his just desserts—and is going to prison.

However, where business and government collide, there is usually another side, one that points to a grave injustice and a misallocation of law enforcement resources.  Instead of the U.S. Department of Justice having protected competition, the government has demonstrated it has no equal for hypocrisy.

The auction case is simple.  Sotheby's and its biggest rival, Christy's, secretly agreed not to cut commissions they charge for auctioning their valuable items.  The testimony was clear, and the government charged that such arrangements meant that individuals who contracted with those auction houses had to pay more than they would have otherwise.

The government charged this "anti-competitive" action harmed market participants and violated the 1890 Sherman Antitrust Act and the 1914 Clayton Act.  Ultimately, the axe fell on Taubman, after present and former executives from both Sotheby's and Christy's (trying to keep out of jail, themselves) testified against him.

The problem was not that the auction houses engaged in price fixing.  Taubman just did not have proper political connections.  For all of their "support" of competition, governments at all levels are often enemies of competition.

Antitrust laws supposedly protect free markets, yet government enforces monopolies from the U.S. Postal Service to public schools.  Furthermore, government price fixing through regulation occurs in all politically connected markets.  For example, the state of Michigan fixes commission rates for real estate and insurance sales.  Any agent who offered you a break on his or her commissions would violate Michigan law and the agent would be in danger of losing his or her license.

Price fixing there is perfectly legal, since the government sets minimum prices.  When the now defunct (thank goodness) Interstate Commerce Commission "regulated" airlines, trucking, and railroads, it did so by limiting routes, preventing entry of new firms, and setting minimum prices.  In other words, everything the ICC did was anti-competitive to the core, yet the ICC commissioners—like the insurance and real estate commissioners in any state—never found themselves on trial for price fixing.  Their actions, however, were no different and certainly more harmful than anything Taubman and his associates did.

Certain enterprises lend themselves to price wars.  These businesses have high fixed costs (the costs that are incurred regardless of sales) and relatively low marginal costs (the costs of producing or selling new items).  More than a century ago, railroads were a classic example and today we see airlines in the same situation.  Auction houses also are in this category.

As our history books tell us, railroad executives had the incentive to cut rates to the bone—which also cut into profit margins.  Airlines and their famous price-cutting wars are the modern transportation example.  For that matter, we see oil producers, and especially OPEC, in the same boat.  In an attempt to protect their profitability, leaders of these organizations, whether they be Arab sheiks or railroad executives, would commonly band together to set minimum prices.  We also know that such agreements did not hold together very long, as the temptation to cut prices in order to gain new customers was too great to ignore.

Likewise, the auction agreements were more smoke than substance, as executives were roundly breaking their promises to each other in order to entice that new truckload of Kennedy memorabilia.  Furthermore, to say that these agreements "harmed" customers is to ignore the fact that all participants in these exchanges were fully aware of the costs they were being charged, and no one can be accused of fraud.

Would the participants have wanted to pay a lower commission?  Of course, but then I would like to pay less for my food at the grocery store or less for my latest auto from Detroit.  That GM and Ford don't cut prices for me is not a crime.  It is simply a business decision.

Defenders of antitrust laws claim that government provides a last line of defense for forces of competition.  In truth, free-market competition does not need such laws.  All that is needed is for government to get out of the way.

"Antitrust laws supposedly protect free markets, yet government enforces monopolies from the U.S. Postal Service to public schools."

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