Art Markets & Art Auctions

Ines Bartsch Irina Grigorova

Art Markets

Content

‡ Definition ‡ Main Characteristics ‡ Art Market Trends in 2008

Art Markets

Definition
‡ The buying and selling of high
quality oil paintings is truly an international activity. Buyers and sellers from all over the world convene at auction sales, galleries, and private homes to exchange high quality works of art.

‡ A result of complex
interactions than can usually not be explained by economic theory.

Art Markets

Main Characteristics
‡ Price ‡ Product

Works priced from $50,000
and up to $1-6M.

The works are transportable
oil paintings on canvas.

The bulk of the works sell
from $50,000 to $500,000.

Sometimes, works are painted
on wood, as in old, European altarpieces.

Only a few $1-2M paintings a
year are sold.

The $3M, $4M and $5M sales
are works by artists like Rembrandt. Spectacular paintings like these only appear on the market every few years.

Occasionally, very old works
may have been done on stucco, and new works may have used some form of plastic.

Art Markets

Main Characteristics
‡ Exists only in cities with financial
and cultural capital that attracts ongoing concentration of market activity

‡ Although auction houses have often
dominated the headlines, dealers: 52% share of global sales; art fairs are emerging as an increasingly important method of selling.

‡ A network of international economic
activity in major world cities: New York, London, Paris, Berlin, Geneva, Milan, Tokyo, Hong Kong

‡ Current art market is being driven
by influx of a new demographic of younger buyers and collectors

‡ The U.S. leads the world market for
contemporary art with 50% of sales

‡ Far less sensitive to economic crises
and geopolitical events than other assets ± long term stability

‡ New emerging art markets: China,
India, Russia, and the Middle East

‡ Considerably less volatile than the
stock market

Art Markets

Main Characteristics
Major Actors, Institutions and Nodes in the Artworld Economic Network ± Artists ± Dealers and Galleries ± Collectors, Buyers (individual, corporate, institutional) ± Auction houses ± Art consultants and Advisors ± Art investment services and funds ± Museums and all museum professionals ± Art media: press, magazines and journals, websites ± Art Fairs ± Biennials, international art forums like Documenta ± Art market services (e.g., Artnet, information aggregators, databases)

Art Markets

Main Characteristics Art Market Analysis: Influences on Value
‡ Art prices develop completely or largely independently of the stock markets or other investments such as bonds or commodities ‡ There are many factors which determine the value of an artists work but the main influence is the career progression of the artist ‡ Price Index:

Art Markets

Art Market Trends in 2008
‡ 2008 - a turning point, beginning in a mood of speculative euphoria and ending in violent contraction ‡ The art market fell victim to the economic and financial crisis as it spread round the globe ‡ The two most dynamic art market places swapped positions in the global auction revenue ranking as London ousted New York from first place ± new capital of the art market ‡ A huge increase in sales in China has turned it into the fourth largest global art market with a 5% share by value ‡ Contemporary art has seen the highest growth rates over the last five years

Art Markets

Art Market Trends in 2008

Art Markets

Art Market Trends in 2008

Art Markets

Art Market Trends in 2008

Art Markets

Art Market Trends in 2008

Art Markets

The art market heavyweights in 2008: top 10 artists
Pablo Picasso Francis Bacon Andy Warhol Damien Hirst Claude Monet Alberto Giacometti Gerhard Richter Edgar Degas Lucio Fontana Yves Klein

Art Markets

Summary

‡ Art ± popular marker of wealth and social status in many cultures ‡ The most important art markets: New York London Paris

‡ Fine art is in fact a very stable investment

Art Markets

ABSTRACT
I. Introduction 1. Definition - Auction 2. Overview about Auctions 2.1. English auction 2.2. Dutch auction 2.3. Auction formats (Open outcry; Sealed bid auction) 2.4. Types of valuation II. How works an english auction (Auction houses) III. Summary

Art Auctions

Introduction Definition - Auctions

An auction is a market institution with precise rules fof determining the price paid for an object and how it is allocated

Auctions participants who make offers to buy are called bidders

Art Auctions

Introcuction - The 4 common Auctions ‡ English auction ‡ First - price sealed bid auction ‡ Dutch auction ‡ Second - price sealed bid auction (Vickrey)
Art Auctions

English AUCTION
price is successively raised until only one bidder remains

Examples: ‡ antiques, art and wine ‡ fish in Boston ‡ used cars in the United States ‡ houses in Australia

Art Auctions

Dutch AUCTION

auctioneer calls an initial high price and then lowers the price until one bidder accepts the current price

Examples: ‡ cut flowers in the Netherlands ‡ fish in Israel, Spain ‡ tobacco in Canada

Art Auctions

Auction Formats ² Open outcry
Ascending Auctions (English) auctioneer announces ever increasing prices to solicit bids, continues until one person left in

Descending Auctions (Dutch) auctioneer announces decreasing prices until someone puts up their hand

Art Auctions

Auction Formats ² Sealed bid auctions

everyone puts bids in evelopes and gives to seller at the same time

First ± price auction, Second ± Price auction

Art Auctions

First-Price Sealed Bid Auction
potential buyers submit sealed bids and the highest bidder is awarded the item for the price he bid the item is sold to the person with the highest valuation Examples: ‡ Mineral rights to U.S. government-owned land ‡ Real estate ‡ Government procurement contracts

Art Auctions

Second-Price Sealed-Bid Auction

the highest bidder wins the item but pays a price equal not to his own bid but to the second-highest bid

the price paid is related to the reservation price of the second highest bidder in theory it should work, in practice have had problems

Art Auctions

Types of valuation ² Private Value Auctions
each bidder knows his/ her own valuation my valuation DOES NOT DEPEND on your information

When is an auction likely NOT to have purely private values? resale possible some bidders are Äexperts³

Art Auctions

Type of valuation ² Common Value Auctions
All bidders have the same valuation but they don¶t know what it is My valuation DOES DEPEND on your information

Most real-world auctions have a mixture of private and common values

Art Auctions

ÅWinner¶ s Curse´
Is it always good to win the auction?

Art Auctions

aArt Markets & Art Auctions

5. How works an English auction - Auction houses
Rules are invented and refined over 2 centuries by english auction houses

Ähammer price³

Äreserve price³ = price which the seller genrally sets = minimum acceptable bid

Art Auctions

5. How works an English auction - Auction houses

Ä[«] auctioneers at Chriestieµs are gentelmen who try to act like businessmen, while the auctioneers at Sothebyµs are businessmen who try to act like gentlemen.³

Art Auctions

How works an English auction - Auction houses
Auctioneer acts on behalf of the seller

receives compensations from both- seller and buyerfor items that are sold buyerµ s premium sellerµ s commission

Art Auctions

How works an English auction - Auction houses
buyerµ s premium sellerµ s commission paid to the auctioneer by the buyer by the seller

10 % of sale price amount is not negotiable

% of sale price varies with the type of item (5- 15%)

Art Auctions

How works an English auction - Auction houses
item unsold

= buyerµ s premium / sellerµ s commission

to bears some of cost of auctioning auctioneer charge the seller a fee on unsold items % of the reserve price set by the seller

Art Auctions

Summary

! ! !

Don¶t forget the winner's curse

Auctions are a way to Ädiscover the right price³

In second-price private-value auctions, you should bid your true valuation

Art Auctions

Summary

!

auction design influences behavior and performance: more bidders increases revenue

first-price auctions may increase revenue when bidders are risk-averse.

Art Auctions

Summar

AArt auctions

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