Collusion is the other inherent flaw of auctions. Because so much price information is on public display, it's easier for either buyers or sellers to collude in an auction than when transactions are done one on one. On eBay, for instance, one illegal trick is for two bidders to team up. One enters a low bid and the other then enters a high bid that no one can top. Afterward, the high bidder withdraws his bid and the sale automatically goes to his low-bidding buddy.
Sellers can cheat, too, by using shills to enter fake bids and drive up the price.
Businesses don't even need to break the law. If a few companies are competing for a customer's business, they could tacitly agree that it's in their mutual interest to charge the same high price and share the business. If one supplier defected from the group by dropping its price, its rivals could punish it by dropping their own prices. Auction experts are divided over which mechanism works best. Monitor's Chakravorti favors ascending-price auctions, a la eBay, because they provide the most information about bidders' feelings.