How auction houses orchestrate sales for maximum drama

The perfect Lot 1 will double or triple its presale estimate, igniting high spirits in the salesroom that encourage enthusiastic bidding.

That is from a new and excellent NYT Judith H. Dobryzynski feature story on how art markets work, interesting throughout.  Here is some nudge, through the whetting of the appetite:

As at a bad play, people may well leave in midauction. So it’s good to set conservative estimates, Mr. Pylkkanen explained: “Then they come in feeling that they may win the object, and when they have that idea in their head, it’s psychological; they go longer. They’re thinking about the celebration they are going to have” if they win.

It’s not the focus of this article, but I believe the art world to be one of the more corrupt sectors of the American economy, once you consider the prevalence of fakes, the amount of looking the other way, and also the use of high appraisals to get favorable tax breaks on donations.  Along other lines, here is one bit:

When asked if they would help get a collector’s child into college to get a great consignment, Mr. Rotter and Mr. Shaw both laughed and nodded yes.

The NYC auction season starts quite soon.

For the pointer I thank Claire Morgan.


I thought this pretty weak on the underlying microeconomics, and describes a lot of things that have been happening for decades rather than identifying what's actually new. The auctioneers are agents for the consigeners; their incentive is to make the sale and get the premium, rather than maximise the price. Price maximisation is a way to win more consignments rather than boost marginal income. But the cognitive bias is that sellers look at the price they are being charged, rather than the total auctioneer's commission. Result is that there is no sellers' premium, except for very low value lots, and on the biggest lots the sellers' premium is negative (they get a cut of buyers' premium). More here:

The auctioneers are also taking a lot more principal risk, not just in guarantees but also in making loans (which are not performing well). They're therefore much more leveraged to the performance of the overall art market. Apologies for the blog plug, but although the comments in this post are fairly basic, not many market commentators have taken trouble to dig into the accounts.

Can't get much more esoteric than this and less meaningful to all but a handful of the world's population. It's nobody's business what people do with their money but investing in bad art is an economic fraud. Stuffing a large aquarium with hundred dollars bills and putting it in the living room makes as much sense.

If auction houses actually could get children into college, that would suggest corruption more in American universities than in the art world. But in fact, the subjects didn't say that they *could* help get a collector's child into college, only that they would (if they could), so this statement falls more into the category of empty promises than corruption. And there's lots of competition for the economic sector with the most empty promises. In fact, academia would score pretty high on that measure.

Of course, at art auctions, the buyer's utility is in large part based on the price not the bargain: it's to the buyer's benefit to pay a higher price, both for the esteem and the effect on the art market generally and specifically on whatever artist is the subject of the purchase. In other words, sellers and buyers are in tacit collusion.

I'm an actual auctioneer, and I just want to throw out that this sort of price manipulation and promising of the world in exchange for an exclusive right to sell is not at all isolated to the art auction market, but is in fact rife throughout industrial auctions as well.

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