Auction Sales Hit Record $15 Billion as Young, Wealthy Collectors Enter the Market
In recent times, auction houses have seen a huge surge in sales as record numbers are being reported, from almost every category. These numbers are appearing due to a multitude of reasons, including the general increase in wealth of the top 1%, with this small group holding over $40 trillion in assets. As the markets slowly reopened after the first surge of Covid, a new group of investors came in looking to acquire their own collectibles. Either due to the novelty, the social status, or their own personal enjoyment, a huge amount of new investors, taking up over 40% of the market, made bids on items at the start of 2021.
In a large majority of cases at these auction houses, the bids were done in an Ascending Bid format, also known as an English auction, where the bid starts at either $0 or a value decided by the auction house, and bidders raise the price until there are no more contenders. Then, the final bidder pays the price they bid to acquire the item. In this bidding format, the buyer’s dominant strategy is to bid until the price reaches your value. Every single bidder can attribute a value to an item, or how much they would pay for it, based on a variety of factors. Then, based on this value, they can adapt their strategy during the bidding.
While value is different amongst each buyer, certain trends can cause an overall population’s valuation of a certain group or category to increase. For example, a very recent trend that has emerged are NFT’s. These purely electronic items, which a buyer can purchase to own a blockchain-based digital image, have no physical value or significance. Instead, their value is only what their buyer, and other prospective buyers, give to it. The most expensive NFT ever sold was at one of these auctions, for over $69 million. This means that for the buyer, the value of the art was at least $69 million, while other buyers could have a much lower value, even as low as $0 if they are completely opposed to the idea of owning a digital image.
Thus, we can see that in an auction, the most important factor is not how much an item is worth, but the value that buyers attribute to it, as even if an item is not worth a lot, it could still be sold for a huge price depending on the audience. However, this also comes with a risk, as if you buy an item and then later wish to resell it, a different group of buyers might attribute a much lower value to the item, and cause you to suffer a loss. This begs the question: “Was it worth it?” which can only be answered by the buyer themselves.