A Handbook of Cultural Economics, Second Edition
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A Handbook of Cultural Economics, Second Edition

Edited by Ruth Towse

The second edition of this widely acclaimed and extensively cited collection of original contributions by specialist authors reflects changes in the field of cultural economics over the last eight years. Thoroughly revised chapters alongside new topics and contributors bring the Handbook up to date, taking into account new research, literature and the impact of new technologies in the creative industries.
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Chapter 2: Art Auctions

Orley Ashenfelter and Kathryn Graddy


Orley Ashenfelter and Kathryn Graddy Works of art and culture are sold by many means. These include transactions between dealers and their customers, auctions with open outcry, and even, occasionally, sealedbid auctions. However, the standard procedure for establishing art valuations is most commonly the English auction, where prices ascend in open bidding. (The primary, but not the only, alternative is the Dutch auction, where the auctioneer starts at a high price and reduces it until a bidder is found.) How ‘English auctions’ really work Many people think they understand the rules of an English auction because they are so commonly used.1 Sotheby’s, Christie’s, Phillips and the other English auction houses have invented and refined these rules over two centuries, and they are now common in many other parts of the world. It is well known that in an English auction the bidding begins low and edges upward as bidders escalate their bids. When the bidding stops, the item for sale is said to be ‘knocked down’ or ‘hammered down’. The price at which an item is knocked down or hammered down is called the ‘hammer price’. What is not so well understood is that the items knocked down have not necessarily been sold. Here is the reason. The seller will generally set a ‘reserve price’, and if the bidding does not reach this level the item will go unsold. Auctioneers say that an unsold item has been ‘bought in’. (This terminology is somewhat misleading since the auction house rarely buys...

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