The auction of Paul Newman’s Rolex Daytona
Phillips is a British auction house that primarily sells artworks, jewelry, and wristwatches. In 2017, a Rolex Daytona once owned by the legendary actor Paul Newman was sold at Phillips for $17,752,500 and broke the world record. After watching a video of the whole process, I found this auction very interesting and decided to write this blog to analyze what happened in the auction.
Like many other auctions, the auction of this Rolex Daytona is an ascending bid first price auction where bidders give higher and higher prices, the highest price wins, and the winner pays what they bid. However, at the start of this auction, the auctioneer announced that there was a commission bid of 1 million USD. A commission bid is a bid made by someone who is unable to attend the auction and is usually the maximum price that person is willing to pay. Right after the auctioneer announced the commission bid, one of the bidders, whose representative was called Tiffany, bid 10 million USD, which is 10 times the commission bid. Normally what most bidders would do is add 0.5 million each time. Here Tiffany’s bidder made a very radical move, but is it really rational? Not necessarily. We learned from the course that the dominant strategy in first-price auctions is never to bid your value because that will guarantee a zero payoff. Even if the current bid is much lower than your value, you shouldn’t immediately bid your value because if the other bidder’s value is significantly lower than yours, you could win the auction by bidding a price that is much lower than your value. However, Tiffany’s bidder directly bid at a price that is very close to their value, which made them very passive during the rest of this auction.
The Auctioneer
Right after Tiffany’s bidder bid 10 million USD, another bidder, whose representative’s name was Natalie, bid 11 million USD. As the auction went on, Natalie’s bidder increased their bid to 14.5 million. Because this price was already extremely close to, if not higher than, Tiffany’s bidder’s value, they only add 0.1 million USD per bid and it took them a lot of time each time they made the decision. But as soon as Tiffany’s bidder said 14.6, Natalie’s bidder immediately increased their bid to 15 million. They kept this kind of back and forth for a while until Natalie’s bidder finally won the auction.
Admittedly, Tiffany’s bidder’s decision of setting the initial bid to 10 million made the auction much more exciting. However, this could also result in a higher final price which reduces the welfare of the winner. If they did not bid 10 million in the first place, the auction of this watch would probably not break the record of the highest price.
Source:
https://www.youtube.com/watch?v=X0tjSUOvi5k
https://www.phillips.com/article/18461746/paul-newmans-paul-newman-rolex-daytona-sets-record-fetches-17-dollars-8-cents-million/zh