(FORTUNE Magazine) – Christie's and Sotheby's have always acted like mortal enemies whose well-bred staffs jockey for the next vault of impressionist oil paintings. Their top executives fuel that perception by trading polite insults as exquisitely wrought as a Cezanne still life. It turns out, however, that for the past eight years, the "grand old rivalry" between Christie's and Sotheby's has been a bit of a forgery. Only now is it igniting for real.

After a three-year investigation, the Department of Justice has apparently uncovered evidence that Christie's and Sotheby's colluded in a commission-fixing scam going back to 1992. Neither of the firms, which together control 95% of the auction market, would say much to FORTUNE about the charges. But in late January, Christie's disclosed that it had turned information over to the Justice Department and won "conditional amnesty" from criminal prosecution. Barely three weeks later, Sotheby's acknowledged it, too, was under investigation--its chairman, real estate developer A. Alfred Taubman, and his handpicked CEO, Diana "Dede" Brooks, resigned.

That isn't quite as unexpected as it sounds. While the two firms do compete aggressively for prestigious art troves, they've always been chummier than they let on. "It's a pretense, of course," says David Killen, a New York fine art dealer. "In some cases, like certain Van Goghs and major collections, they've had what you would call a cold war to get the piece. But basically, the two auction house are overwhelmed by [the volume of art] up for auction."

There has always been plenty of mutual benefit to the public sniping. It lends excitement and glamor to a trade that might otherwise be seen for what it truly is: a high-end tag sale for people who enjoy writing big checks. "To the extent that they can highlight their competition, it helps them both," says Michael Stout, a New York attorney who represents the estates of Keith Haring and Robert Mapplethorpe. "It enlarges their market. People love competition. It's become a spectator sport in New York."

Both firms scoff at talk of a pretend feud, but they are friendly enough to schedule their spring and fall auctions within days of each other to attract the same wealthy buyers. And they take turns going first. Their alliance may date back to at least 1992, when the art market was hurting. (The Justice Department has subpoenaed sales records back that far.) Class-action suits filed by miffed collectors accuse Christie's and Sotheby's of fixing prices that year when the two houses raised buyers' commissions to identical levels within six weeks of each other, and again in 1995 when they adopted the same sliding scale for sellers' commissions. "We have good grounds to make these charges," says Christopher Lovell, one of the class-action attorneys involved. (There's talk that now the two houses are hastily trying to settle more than three dozen of these suits.) The art market rebounded in the second half of the decade, and Christie's and Sotheby's sales soared. Sotheby's had $2.26 billion in sales last year; Christie's (which is privately held) boasted $2.25 billion. Nonetheless, they blithely continued to beat on each other publicly. Privately, they kept the matching commission structures in place. Now the grand old rivalry between Sotheby's and Christie's is finally living up to its reputation.

With the Justice Department investigation heating up, Christie's--under Francois Pinault, the French financier who bought the auction house two years ago--cut a deal with the government. It implicated the recently departed CEO and chairman and left Sotheby's out in the cold (Sotheby's stock declined 15%, to $20, in the following days). Christie's also announced it would roll back its sellers' commissions for the first time since 1995.

Though Christie's adamantly denies it, a lot of people are convinced Pinault is using the investigation to gore his rival. "They competed in the past, but they never really tried to deal one another deathly body blows," says Bruce Wolmer, editor-in-chief of Art & Auction. "You have a sense now, with the way this story is playing out, the rivalry has jumped to a whole new level."

It sure has. Sotheby's has responded with management changes and its own commission cut. There are rumors that Bernard Arnault, the Parisian tycoon and Pinault's arch-rival, has his eyes on the weakened auction house. There's no love lost between these two aggressive Frenchmen. They competed last year to buy Gucci (Pinault got it) and Etude Tajan, their country's biggest auction house. (That one went to Arnault.) So you can imagine what would happen if Arnault snapped up Sotheby's and went into head-to-head competition with his nemesis. (For more on Arnault, see "Can a Luxury King Rule in Cyberspace?")

In another scenario, Sotheby's is rescued by an Internet auction company like eBay or Amazon.com, its partner in the auction house's online efforts. Both have market caps at least 14 times larger than Sotheby's. eBay says it's not interested; Amazon.com refuses to discuss future business plans. However, both companies would probably love to get their hands on Sotheby's up-scale clientele. One thing's sure, though. Now when these two trade barbs, you'd better believe it.

--Devin Leonard