Friday, November 20, 2015

Running an art auction

Art is a textbook example of the advantages of an auction over simple posted price: an auction awards the art to the highest value bidder, and sets a price. Competition between the auction houses has taken the form of price guarantees:
Christie’s agreed to give the seller of “Four Marilyns,” Turkish financier Kemal Cingillioglu, a $40 million house guarantee, which means the house promised to pay him up to $40 million no matter how the silkscreen fared. Since it sold for less [only $32 million], the house could now need to pay him the difference. Christie’s declined to discuss the terms of the deal.
HT: Chris

3 comments:

  1. This shows a couple problems with auctions vs simple price posting. First with art auctions, you never know when an art collector will show up and pay more than anyone would think for a particular painting. This is why an auction is an auction. If someone has more money and really wants something, they win it. If you put a price on the painting, you will only get that price. Auction houses have to assess art and figure out how much it will sell for. If they think an artist will sell for more, they will offer more of a price guarantee to have the artist’s work in their house. This causes the other issue. If the auction house guarantees a value, they have to sell the art for at least that value. The fact that the house guarantees a value sets up cartels. These cartels can eliminate funds that an auction house could make and forces the auction houses to figure out a way to eliminate them.

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  2. I have always wanted to attend an Auction, because I have heard so much about the great deals you get for less. I especially wanted to attend a Car Auction, however you have to have a licenses to attend. My best friend has purchased all of her cars at the auctions. She walked away without a monthly car note for 5 years. Not to mention, she got the same type of car as I had purchased from a dealer, but 2 years older, but at least 10,000.00 cheaper.

    The Various types of Auctions

    1. Oral Auctions- also known as an English auction, bidders submit bids until only one bidder remains. The item is awarded to the last remaining bidder. This type of auction is often used to sell art, wine, antiques, and other goods.

    2. Second Prize Auctions- also known as a Vickrey auction, is a sealed-bid auction in which the items awarded to the highest bidder, but the winner pays the second highest bid. This type of auction is used to sell rare stamps, and for auctioning off multiple units of the same item for example 20 computers.

    3. First Price Auctions- also known as the Dutch auction- in a sealed-bid first-price auction, the highest bidder wins the item at a price equal to the highest bid.

    4. Common –Value auctions-also known as the winner’s curse; is the value is the same for each bidder, but no one knows what it is. Each bidder has only an estimate of the unknown value. Since the highest and most optimistic estimate is likely to exceed the actual value, the winner will lose, on average.

    This is a huge business, and it looks like the cartels are taking over.

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  3. I now understand how auction houses can lose when selling art. To guarantee business they overpromise what they can deliver to the dealers or private owners of art. The fees they charge may help but auction houses lose when art doesn’t bid up to the price they guaranteed. It’s interesting from the standpoint that they actually have become so competitive that making a profit on some deals doesn’t matter. As long as their competition doesn’t end up with the art. The Wall Street Journal article also shows how auction houses with actually go to the extent of offering art in return for the deal. This is not a good business practice as the losses can start to add up very quickly. For instance, Christie’s deal with a guaranteed sell price of $40 million, netted a loss of $8 million since it sold at $32 million. The owner had a sweet deal which is a switch to the saying “The house always wins.” When Christie Auction House doesn’t sell, then it not only losses money to the owner but there are losses in its commission fees as well. The Wall Street Journal article mentioned how this just didn’t happen once but actually repeated itself several times in one day.

    Reference:
    http://www.wsj.com/articles/christies-sells-331-8-million-worth-of-art-1447212399

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