1. Entertainment and Media: Markets and Economics
The Art Market

3. $135 Million Klimt, to Ronald Lauder

4. Going Once: $43.7M
It looks like it should be worth $200, but it sold for a whopping $43.7 million.
An Andy Warhol painting called "200 One Dollar Bills" fetched the megasum at Sotheby's last night.
It represented an incredible profit for the seller, who purchased the silkscreen for $385,000 in 1986, according to a spokeswoman for the Upper East Side auction house. Sotheby's had estimated it would sell for $12 million.

5. Going Twice …. $80M
Jasper Johns: 1988:$17M to 2006:$80M

6. Going Three Times …

7. Gone! $119.9M

8. $100 Million … sort of
Stephen Wynn with a Prized Possession, 2007

11. An Enduring Art Mystery
Graphics show relative sizes of the two works.
The Persistence of Econometrics. Greene, 2008
Why do larger paintings command higher prices?
The Persistence of Memory. Salvador Dali, 1931

12. Dali in Large and Small
Hallucinogenic Torreador ( ) is 9’10” wide and 13’1” tall.
The Persistence of Memory. Salvador Dali, ” x 11”

13. Monet in Large and Small
Sale prices of 328 signed Monet paintings
Log of $price = a + b log surface area + e

14. Entertainment and Media: Markets and Economics
Art as a Financial Asset

15. Art Market Market for paintings? Measuring the return to art
Subjective “returns”
Consumption value
Measuring the return to art
Ill defined “asset”
Uniqueness of valuable pieces
Repeat sales of the same print after long intervals (hundreds are recorded)

16. Paintings as Risky Investments
Mean
St.Dev.
Inflation
Interest
Bond
Stock
4.2%
8.8%
1.000
B of E r.
4.7%
3.6%
0.58
UK Bond
4.8%
10.6%
0.32
0.67
UK Stock
4.9%
21.9%
-0.09
0.14
0.39
Art
17.5%
52.8%
0.18
0.52
0.54
0.78
Annualized Returns 1900 – 1986
Mean Std.Dev Correlations

17. The Returns to Art, by Period

18. Very Long Term Return to Art
Van Gogh’s Irises
1987: $40M
1990: $53M (sort of…)
Getty museum, which won’t tell how much…
Lauder’s $135M Klimt
Baumol’s analysis of 640 transactions
Remarkably low annual return – close to zero
High variance.
Returns to art are all aesthetic

19. Anti-Portfolio Theory (Pesando)
Buy one masterpiece for $100,000, not ten lesser pieces at $10,000 each. (Wisdom)
Conclusions
Short run excess returns
Masterpiece portfolio does not do better than the market
Many price and return anomalies

20. Crapshoot Theory Baumol: There is no equilibrium and no anchor
Why are money and art correlated?
A wealth effect.
An Intervening effect – the stock market
An issue of causation
The greater fool theory

21. A few weeks ago, a triptych portrait by the British modernist painter Francis Bacon sold for $142.4 million, a record for a work of art at auction. The next night, a silk-screen print, “Silver Car Crash (Double Disaster),” by the American pop artist Andy Warhol brought $105.4 million. And this week, “Saying Grace,” by the American illustrator Norman Rockwell, sold for $46..1 million. The art market would seem to be going through the roof. But is it?

23. Mei-Moses Art Index
(You need to be a member to get past the front page.)

25. Mei and Moses on Art 1950- auctions, Christies and Sothebys
Underperformance of masterpieces
Better than fixed income securities, worse than stocks
Small variance  good portfolio choice
Loose ends
Winner’s curse in bids?
Income effect – cyclicality of prices
Euphoria effect – movement with stock market
The true return – intangibles

26. The Art Market vs. Stock Market

27. Segments of the Art Market

28. The Art Market: Mei/Moses’ Measures

29. How does art attain value?
This article describes a new vault where buyers of high end art can store their assets while they wait for them to become more valuable.

30. Entertainment and Media: Markets and Economics
Art Auctions and Antitrust

31. Art, Auctions and Antitrust
Open outcry, English style (ascending)
Private information only in valuation (by nature)
High end art market dominated (90%) by Sotheby’s and Christies

32. Some History NY, 1960, dominated by Parke-Bernet
Competition from London by Sotheby
P-B for sale in 1963, $2M.
S makes a credible threat to enter, drives the price down to $1.5M and enters
Christies and Phillips enter in 1977
Christies entry did not drive down the value of Sotheby. Entry established NY as a focal point for art sale – drove up the stock value of both companies.
S and C acted as a natural duopoly, heavy competition until Competition suddenly stopped.
1995, conspired to fix commissions.

33. Art Auction Conventions
The “hammer price”
Two commissions wedged between buyer and seller:
Buyer’s commission about 10% of hammer price
Seller’s commission about 10% of hammer price
Seller Hammer Buyer
Commission

34. Fixed Commissions
Sotheby’s essentially identical.

35. The Civil Settlement About $300M for each company
Some criminal penalties for some conspirators (notably Alfred Taubman who lost a lot - $7.5M and 10 months in jail.)
Most $$$ paid (inappropriately) to buyers
Theory is unambiguous – buyers will just reduce their bids so that bid+commission will not exceed their reservation price. They were not harmed.
A curious incentive – the amnesty rule. The first company to confess gets off (partly) from the criminal prosecution. (Not the civil suit.)
A curious auction: The right to represent the plaintiffs was auctioned to the firm with the highest guess as to the minimum they believed they could win for the plaintiffs. (David Boies et al.)