All art buyers are equal, but at auction, are some buyers more equal than others?

10 05 2010

Auction_hammerThe laws that govern buying and selling in a competition-based forum are based on the premise that all buyers are competing on a level playing-field. According to competition laws, the only factor that should restrict your capacity to bid at an auction is personal access to material resources (the size of your wallet/cheque book/credit limit), and, of course, the total amount you’re willing to pay for the thing being sold.

The Australian Competition and Consumer Commission (ACCC) regulates the auction trade (be that the real estate, used car, or art market) to ensure that no factors endemic to that trade contribute to the creation of an uneven playing field. By law, when you’re bidding for an artwork at auction, the person against whom you’re bidding should have no financial advantage over you that has been put in place by another participant in the auction process. Interesting to consider, then, the buyer’s premium. During the brouhaha over art auction practices that played out in the public arena a year or two ago, the one issue that wasn’t raised is the question of whether or not auction houses offer loyal/preferred clients a discount or rebate on the buyer’s premium. And I think it’s an important question to ask. The following is all hypothetical, but I’d be really keen to see what prevailing auction house policy is on these matters.

Why? Well, in Australia, the major art auction houses charge 20% on top of the hammer price of an artwork. So, if you are the successful bidder for painting and the auctioneer brings down the hammer at a price of $1,000, you will also be liable for a charge of $200 plus 10% GST on that amount, so the total premium added to the hammer price will be $220. Your total bill for the painting will be $1220. But, what if the person you’re bidding against has been promised a rebate on the buyer’s premium by the auction house? Let’s say, for argument’s sake, that something has been put in place prior to the auction that would mean he or she will only be 10% out-of-pocket in buyer’s charges. That rebate might be offered in many and varied ways – one that springs to mind could be that, if the buyer was also a volume seller, they could be offered a commensurate discount on their seller’s fees. However the rebate or discount might be offered, it would give your competitor a considerable advantage over you. Back to the $1,000 painting, if you calculate that you don’t want to pay more than a total of $1,200 or so, you will stop bidding at $1,000. But, let’s say your competitor also wanted to limit his or her total bill to $1,200 or so – with the rebate, they could bid up to $1,100 and still only be liable for a total amount of $1,221. So, you would stop bidding at $1,000, and they could bid up to $1,100. The same bid on a hammer price of $1,100 would cost you $1,341.

This would not be not the same as preferential treatment offered to buyers in the retail industry – for example, discounts offered to people who have signed up to a retail chain’s loyalty program. In retail sales, buyers pay an asking price. Their choice on whether or not to buy is based on the price on the tag. They are free to negotiate the price with the seller or, if they deem it too expensive, to walk out of the shop. Competition in this environment is based on price-point – a retailer that asks too much for its product will be ‘punished’ by buyers who will go elsewhere to find the same or similar product at a lower price. Price adapts to demand. It is the retailer’s prerogative to offer loyal shoppers discounts to reward their patronage – although it may mean that those in the loyalty program take advantage of their discount and rush in to buy up all the available black trenchcoats, for example, leaving none for the other buyers. But because the members of the program and the less privileged buyers are not competing to set a price for said trenchcoats, this scenario does not contravene anti-competition laws.

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