AUCTIONS

Among the most elementary forms of buyer-seller exchange, auctions are a public transaction of goods where items are sold to the highest bidder. As a means for conducting business, the flexibility of auctions allows them to take on a range of forms and serve a variety of social and commercial functions. Economists theorize that auctions are most useful when there is uncertainty about the right price or the real value of an object. In practice, however, auctions are just as valuable for the enjoyable interactions that take place between participants as they are for the exchange of goods and services.

American Auctions from the Early Years to the Early Twenty-First Century

The history of auctions in the United States mirrors the lifestyles and values of the American people. Among colonial merchants, fish and fur were common auction wares. In agrarian communities, auctions were a prominent method for trading livestock and farm equipment. Prior to the abolition of slavery, auctions were the preferred method for buying and selling slaves in the American South. In urban locales, swap meets and penny markets turned up as an underground economy when there was a need for cheap used goods.

The history of what was sold at auction, from stamps to Beanie Babies, coins to autographs, weapons and firearms to jewelry, gives insight into what Americans collected during different time periods. In the early 2000s, auctions flourished in the Unites States as community organizations and charities held silent auctions to raise funds at their annual dinners. Individuals sold collectibles on Internet auction platforms. Members of the social A-list bid on fine art, celebrity paraphernalia, and culturally historical artifacts. Auctions can be light hearted and relaxing events, with an enjoyable atmosphere where people peruse the goods at open air flea markets, acquiring pieces of Americana. They can also be serious business ventures, as seen by the fact that nearly 7 percent of all real estate transactions in the United States in 2001 were conducted at auction.

The Dynamics of Buyers and Sellers

The most common type of auction practiced in the United States in the early twenty-first century was the English auction. True to the entomology of the word auction (from the Latin, auctio, meaning to increase), this auction style starts bids at a low price and increases them as competing bidders better one another. The bidding continues until one bidder, the winner, remains.

Sellers in this type of auction tend to be less educated than bidders when it comes to knowing the price the goods could command at market. While sellers are sometimes simply looking to turn a part of their estate into cash, bidders are often hobbyists, collectors, professional dealers, or representatives for institutional collections, who are well versed in what signifies value or rarity in an item. Because of this disparity in market knowledge, bidders are often drawn to auctions with hopes of being able to acquire items at less than their true value. Lessereducated bidders will often try to take cues from industry insiders to acquire choice pieces. For this reason, bidders may choose not to reveal their expertise in a field. Bidding, however, is not an exact science, and bidding skill is not always commensurate with market knowledge. Emotion can often play a role in driving up the price of merchandise. When bidders become more motivated by emotion than by their understanding of the market, they can fall victim to the "winner's curse"—the realization that one has just bid more than the actual value of the item. In this case the winner has won the goods, but has lost more money than the goods are worth.

To improve their chances of getting a good price, sellers often employ a third party agent, an auctioneer or an auction house, to publicize the event, lure potential buyers, and conduct the sale. Auction houses will work with the seller to determine the opening bid amount and, if necessary, set a reserve price below which the seller is not willing to part with his or her goods. A reserve is also used as a preventative measure against collusive bidding, where dealers agree not to bid against each other to keep the price low, and later divide the goods among themselves. If the reserve is not met, the goods are "bought in" by the house and returned to the owner. After the sale, bidders who are still interested in items that went unsold can make an offer directly to the owner. For their services, the auction house charges the seller a percentage of the sale price that is returned to the auction house in the form of a buyer's premium. Traditionally, the buyer's premium is 15 percent of the winning bid for a sale $50,000 and less, 10 percent for sales in excess of $50,000.

Participants in the Auction Event

An auction's appeal is frequently attributed to the thrilling experience and spectacle of the event. Auction houses call on the services of a wide variety of support staff to make the event successful, from transportation experts who make sure delicate products make it to the block unscathed to catalog production teams who photograph and market the goods. Auction houses employ industry specialists to research and determine the authenticity of goods, and keep these people on hand to counsel buyers and sellers on auction day. At large auctions, hundreds of hands are needed to register bidders, distribute bidding paddles, and serve concessions.

The most important figure supplied by the auction house is the auctioneer. A skilled auctioneer can play a large role in an auction's success through his or her ability to relate to the bidders, build up the pageantry of the sale, and encourage a jovial and sociable setting. Whether they are selling high- or low-dollar goods, auctioneers do their best to evoke quintessential American sentiments: competition, freedom, control of one's destiny, and an entrepreneurial spirit. By perpetuating the myths of the market, buyers are encouraged to follow their dreams, and the audience participates more readily in the bidding.

Much like the conductor of a symphony, an auctioneer must balance the excitement of performance with technical control. Commanding the rostrum entails managing the emotions of bidders, setting the proper pace so that prices increase quickly, yet not so fast that control is compromised. Some say that one either has the talents of a good auctioneer or one doesn't, but this is not deterring would-be auctioneers from applying to auctioning schools. The success rate from Christie's auctioneering schools in London and New York, however, speaks to the difficulty of mastering the auctioneer's skills and flare. Only one in three makes it to the rostrum.

The introduction of new technologies has opened the door to ever-wider audiences at auctions. Controlling the auction, however, now means that auctioneers must also monitor bids from those participating via telephone or computer. When these participants are solicited from countries that use a different currency, that introduces the challenge of converting bid into the currency used for the sale. To top it off, auctioneers are still expected to protect the anonymity of some bidders in the live audience. To remain anonymous, some people who prefer to use secret signs, like a subtle gesture or the lifting of one's glasses, rather than traditional bid indicators like colored numbered paddles provided by the auction house.

Implications of the Auction House: Sotheby's, Christie's, and eBay

Two auction houses emerged in eighteenth-century England that persisted as the preeminent auction houses operating in the early twenty-first century. Initially specializing in the auctioning of books and literary goods, Sotheby's was founded in 1744, and in 1766 Christie's opened its doors and started auctioning paintings and decorative arts. In the early 2000s, both houses auctioned goods from fine wines to photography to entire estates. As the range of goods sold at these auction houses expanded, and as they opened auctions on the Internet, their sales dollars increased. In its inaugural year, Sotheby's sold 826 sterling pounds of literary material. By 1999, Sotheby's auctions topped $2.25 billion, and in its inaugural year Sotheby's online drew in $53 million in sales.

In 1995, the emergence of eBay, the world's largest web auction house in the early twenty-first century, opened a new marketplace for the anonymous exchange of second-hand wares. The lucrative appeal of online auctions drew in 3.8 million participants to eBay alone in 1999. By 2003, eBay was predicting net revenues up to $1.55 billion. The lucrative appeal of such a high traffic online web site has prompted some to quit their jobs in brick and mortar retail stores and set up shop exclusively on the cyber auction block.

Bidders at both online and live auctions are cautioned to beware the dangers of price fixing, collusion, fraudulent goods, and underhanded bidding practices. Between 1997 and 1999, incidents of reported online auction fraud increased hundred-fold from roughly 100 to 10,700, and in 2000, online auction fraud represented more than 50 percent of the consumer complaints on the Internet. In one publicized case, eBay invalidated the sale of a $135,000 painting when it was revealed that the seller had bid on his own work. Online auctions have had their share of success stories too, including the sale of an original copy of the Declaration of Independence that had been found inside a painting frame bought for $4 at a garage sale. When the document was sold for $8.14 million, it became the most expensive item ever auctioned online.

See also: Antiques, Computer's Impact on Leisure, Garage and Yard Sales, Internet

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Caitlin W. Haskell