Auction, then and now

Some of you might ve read this earlier. Posted again in the context of auction controversy still going on!
-M G Warrier

Of Auction and Prices, Then and Now*

By M G Warrier

I have a special aversion to buying things which have no fixed price. Especially post-LPG (liberalization, privatization and globalization, circa 1991), this aversion has made my life miserable. If one has to buy things at reasonable prices, whether it is toilet soap or an air ticket, one has to be a market wizard. Like operating in the stock market, one has to select the time, day of the week, outlet and various other variables before carrying out a transaction.

The recent controversy about sale of 2G spectrum bandwidths gave me the comfort that whether in buying or selling, governments are also facing dilemmas similar to the one I am averse to. I am in good company! Kapil Sibal gave me a bagful of relief when he argued that if Peter has been robbed, it is for paying Paul.

The telecom minister said that the losses to the exchequer were the gains of mobile users. Now I find that there are takers to this explanation and millions of mobile users are likely to vote for the candidate of Sibal’s choice in any election. The ingredients of the spectrum auction reminded me of an auction scene which I had witnessed as a sixth standard boy.

The occasion was a jewellery auction held in early 1950s in a remote village in North Kerala. The properties of a provincial royal family were being partitioned under the supervision of court. The family had a sizeable treasure of jewellery, in gold, diamonds and other precious metals/stones. The advocate receiver obtained court permission to sell these assets through public auction. He decided the date of auction well in advance and gave wide publicity among the rich and famous across the entire south.

On the auction day, several rich individuals from states of Madras and Mysore (Karnataka) as also a couple of landlords from within Kerala arrived much earlier to the appointed time for auction. Local people including members of the royal family who could put together a few hundreds or a couple of thousands of rupees also were allowed to participate in the auction. There was a big crowd eager to have a glance of the glittering ornaments owned by the royal family which they had only heard of.

The advocate receiver himself was conducting the auction of each small item of jewelry separately, one by one. He started with items of small value which attracted local participants and the entire money mobilized by them got committed in the initial stages of auction. The interest shown by bidders in competing with their own neighbors must have pleased the advocate receiver.

When the value of articles offered for sale started rising, there was a change in the pattern of bidding. The ‘guest bidders’ were all sitting together on one side and each item attracted only two or three bidders and had to be allotted to the second or third bidder for a price not much above the ground price at which the bidding started. In the process the entire stock was sold out for some amount between one and two lakh rupees(not a small amount, as this happened during the First Five Year Plan which had an outlay of Rs2069 crore).

What really happened was, the visiting bidders with the help of a local landlord who was also participating in the auction joined together and after allowing local participants to exhaust their resources in buying small items which came up for auction at the beginning, abstained from competing among themselves.

They stayed back for a day or two, bought the items originally purchased by locals also, at much higher than their cost prices at the auction and each of them, later made huge fortunes running into lakhs in outside markets from what they had managed to ‘buy’ at throw away prices, complying every legal provision in ‘letter and spirit’.

I find that the world has not changed much in the last sixty years except that new players have come, the amounts involved have become astronomical, items sold are sometimes totally intangible like bandwidth or at times as hard as minerals deep inside the earth and that the whole world is an auction platform, now!

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* Published in The New Indian Express on April 23, 2011


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