Comeback Kid Basquiat’s Canvas Boosts $229 Million U.K. Auctions
http://www.bloomberg.com/news/articles/2016-10-07/comeback-kid-basquiat-s-canvas-boosts-229-million-u-k-auctions
This article discusses the highlights from the Frieze week art auctions in London. During this week, three different auction houses hold art auctions – Sotheby’s, Christie’s, and Phillips. These auction houses are places for artwork to be auctioned off to the highest bidder. Auctions like this are utilized in order to allow the markets and consumer demand to determine the true value of these artworks. Professionals in the industry come up with estimates of how much they think that the piece of art is worth, but the auctions determine how much the art is actually worth to the art investors. The buyers that attend these auctions are extremely educated themselves or have hired people that are to place a correct value, and therefore bid, on the desired pieces.
This particular year was very interesting due to the current economic market conditions. Due to the United Kingdom voting to leave the European Union, the Sterling pound has significantly dropped in value, allowing the magnitude of bid prices to skyrocket. For example, the 1982 work “Hannibal” by Jean-Michel Basquiat was sold for 10.6 million pounds or the equivalent of $13.2 million. This was more than twice the highest pre-sale estimate, which fell around 4.5 million pounds. Earlier that day, another piece of art, the 1982 abstract Gerhard Richter painting “Garten” was sold for 10.2 million pounds, which was almost three times the high estimate.
These auctions, along with most other art auctions, are single item, first price auctions. This means that there is one item that is desired by multiple buyers (there is one painting that multiple people want to own). The highest bidder wins the auction and pays their bid – this is an ascending price auction, as the auctioneer continues to ask if there are any higher bids before giving the item to the highest bidder, meaning the price starts low and continues to increase. If there are multiple bids that are equal and are all the highest bid, other factors come into play to decide who wins the item. In a single item, first price auction, bidders should bid slightly below their true value to ensure that they receive a positive payoff. This is because the only way to win is to have the highest bid, and if you have the highest bid, you pay your bid, and if you bid your true value, your payoff would be 0. Given this concept, it is extremely interesting to see how market conditions affect artwork prices – when the economic markets aren’t doing well, one would think that art prices wouldn’t be that high either because the art wouldn’t be as valuable to people, but given the fact that the art is auctioned off in a currency that has suddenly become very cheap, the prices actually increase, because money seems cheaper so people are willing to pay more.