21 nov. 2007

Expensive buying at auction, why ?

French publicist Henri Rochefort noted some 150 years ago that auction was the only case where a buyer could be fully satisfied to have bought too expensive. This phenomenon is also close to our recent discussions, in connection with the recent Nobel Prize for Economics, proving that auctions do not respond to conventional laws of the market. There are many reasons to expensive buying : mundane (looking for a publicity, finally inexpensively), property (push the prices of a class of goods already well in someone's hand), commercial (to discourage from the market one or more competitors; demonstrate to a client some know-how to deal with top level goods), or simply egocentric (showing his buying power, spreading his culture or his taste). These cases are to be taken into account in the models for predicting the price of art. To be developed later on.
For example : the amusing article from 24 heures magazine (http://www.24heures.ch) about auction of car identification number by the Department of Automobiles in Switzerland. It is not even a transfer of ownership, since the buyer could not resell his acquisition. The "ordinary" price starts at 300 FS, highest prices paid were 131,000 Swiss francs in Zurich, 33000 FS for Vaud. Vaudois top buyer is an asset management company whose funds manager, accustomed within stars' magazines, got the opportunity to have his picture published in the press, accompanied by his "new bride" in an evening dress. KFS 33 is a fantasy for a billionaire, especially since it was his company which paid at the end of the day ; Free insertion in the press, what a bargain for him!
Oct. 26:
Again, the starmania, and again outside France: $ 100 K a lock of hair from Che Guevara sold in Dallas on Oct. 25 without even a formal guarantee of authenticity from the auction house, Heritage . The buyer, a Texan bookseller, benefits to make foam in the press. The auction is equal to the starting price, it means that there was only one buyer for that lot, that nothing can be learned for a score, and that the auction house had possibly not targeted that THIS buyer could pay even more.
Another reason to buy expensive is when it is believed that no other similar object will soon hit the market. In London, one of 500 copies of the original issue of the first Harry Potter book has made £ 27 K in May; the book was dedicated. The price difference with the copy sold £ 19.7 K on October 25 at Christie's is certainly not explained by the dedication: the star here is the character, not the author. Follow that score !
(first posted with the French version on Oct 20)