Sotheby’s Hybrid Auction in the Landscape of COVID-19
Founded back in the eighteenth century, Sotheby’s has grown to become a multinational corporation that boasts one of the largest collections of art, of which they broker in auctions. Starting in 1744 with books, then infiltrating the realm of fine art, the company has administered ascending-bid auctions. As taught by Professor Easley in class, these types of auctions are live, conducted by an auctioneer who increases the price until only one bidder is left. These Sotheby’s events grew in popularity, even evolving into black-tie events with celebrities in attendance, and thus, the company is now renowned for the way in which they have cultivated a unique atmosphere for this competitive bidding process.
Fast forward to the twenty-first century, the COVID-19 pandemic hit, and it was no longer possible to host large in-person gatherings. In an already increasingly technology-dependent world, Sotheby’s had to adapt to fit their over 200 year-old auction model — live, ascending-bid style — with the conditions of current society. In a press release from May 2020, they announced the start of a new, hybrid style of auction, called “In Confidence: Selected Masterpieces,” which combines “the discretion of a private sale with the dynamism of an auction.”
Behind this eloquent marketing phrase, though, it can be seen upon closer analysis that this shift in auction style merges second-price sealed-bid auctions — a non-live format that requires the highest bidder to pay the second-highest bid — with the ascending-bid style. The press release explains that participants have one week to place their bids online, confidentially, and the highest bidder must pay “one increment” more than the second highest bid. During this week-long window of time, bidders are notified virtually by an “independent auditor” — or, in other words, seemingly a version of an auctioneer — if their offer has been outbid, and they are then allowed to submit one more bid online, this time final.
When considering auctions as a game, it makes sense that the executives at Sotheby’s would think to combine second-price and ascending-bid. As discussed in Chapter 9 of the Networks, Crowds, and Markets textbook, these two styles of auctions have a close intersection. In an ascending-bid auction, the winner essentially “pays the price at which the second to last person dropped out,” so the true difference from second-price auctions is the element of time, as unlike second-bid, ascending-bid auctions involve live communication with the auctioneer.
So, Sotheby’s In Confidence, overall, seems to bear more similarity to a second-price auction, and the ability to bid a second (final) time and interact with the auctioneer in this additional way seems to be the only element taken from the ascending-bid format. In a contemplation of strategy, then, a bidder must consider her ability to bid a second time when placing her offer. As taught in lecture, the dominant strategy for a second-price auction is to bid one’s value, no matter what everyone else does, whereas the dominant strategy for an ascending-bid auction is to stay in the game until the current price reaches one’s value. With this taken into account, for the Sotheby’s hybrid style auction, a bidder’s strategy should call for her final bid to match the value she places on the object, with her first bid perhaps a certain amount lower.
In summary, the “innovative” new auction style of Sotheby’s is really just a second-price auction (allowing “the discretion of a private sale”), with a slight addition of ascending-bid (for the element of “dynamism”). Sotheby’s can still be commended, though, for their ability to adapt to the landscape of COVID-19 in an effort to preserve the auction environment that they have pioneered for centuries.
Press release: https://www.sothebys.com/en/press/sothebys-launches-innovative-new-sale-format-in-confidence-selected-masterpieces
History of Sotheby’s web page: https://www.sothebys.com/en/about/our-history
Textbook chapter consulted: https://www.cs.cornell.edu/home/kleinber/networks-book/networks-book-ch09.pdf