Chandelier Bidding in Padua

The New Yorker’s Mary Norris went to Padua for an auction run by Coys of Kensington,

auctioneers of vintage motorcars. She accompanied Giuseppe Favia, who was selling

a 1959 Mercedes-Benz 190 D with literally sainted provenance. The auction itself,

however, was not

quite as blessed.

Bidding began at a hundred and fifty thousand euros, with the auctioneer

under pressure to push the price up. (It had been widely reported that a Volkswagen

Golf said to have been owned by the Pope had sold on eBay for a hundred and

eighty-nine thousand euros.) By the end, three bidders were contending, one

of them on the phone from Belgium. The final bid of two hundred and forty

thousand euros seemed to come from a bidder in the hall. When it was all over,

Signor Favia tried to find the bidder, but he was not in the crowd.

Coys not only protected the anonymity of the buyer but maintained, despite

the throng of witnesses, that the car had not been sold. David Barzilay, of

Coys, invoked a technicality: “The auctioneer never said ‘Sold.’

” When pressed, he added that the reserve of three hundred thousand

euros had not been met. Apparently, it is not unusual for negotiations to

continue after an auction; the auctioneers had their commission to consider,

and they might not have heard the last of the Belgian. This left Signor Favia

in a state of limbo.

This is more than a little confusing, but it does give me the opportunity to

clear something up which I’ve been meaning to get to for a while. I talked a

bit about reserve prices and the pratice of "taking bids off the chandelier"

in my guide

to deciphering auction results earlier this month. But (as ever) there’s

more to be said – and the key point is that if an item ever fails to sell

at auction, the final bid is always fictional. Is that a bad thing?

Daniel Grant would have

you believe it is, when he complains about "phantom (or ‘chandelier’)

bids that the auctioneer announces and records to get the bidding up to the

reserve". But in fact it’s not a bad thing at all: in fact, it’s a necessary

thing if the auction, as designed, is to work..

Remember that an auction, like any market, is an exercise in matching buyers

with sellers. The buyers, naturally, have a price above which they will not

buy; the seller, equally naturally, has a price below which he will not sell.

If those two prices don’t overlap, there’s no deal: the item can’t be sold.

If they do overlap, then the auction mechanism is designed to discover

which buyer is willing to pay the most money.

That’s done with the bidding system: each would-be buyer outbids the last,

until there’s only one left. The system works well, when there are multiple

buyers. But it doesn’t work very well when there’s only one would-be buyer,

even if he’s willing to pay more than the reserve, because there is no one else

to bid him up to the reserve level at which a deal can be struck.

That’s where the auctioneer comes in. He tells everybody, at the beginning

of the auction, that he "may continue to bid on behalf of the seller up

to the amount of the reserve either by placing consecutive bids or by placing

bids in response to other bidders". That way, even if there’s only one

real bidder, the auctioneer can take bids off the chandelier up to the reserve

price and keep that one bidder bidding. The purpose of this is exactly what

Daniel Grant complains that it is: it’s to get the bidding up to the reserve

price. But remember, that’s exactly what both the buyer and

the seller want: they both want a deal acceptable to them. If there were no

phantom bids, then the item for sale would simply not get sold.

Even if there are three real bidders, if only one of them is willing to go

over the reserve price, then it might well be necessary to invent a chandelier

bid or two in order to discover that fact. And there’s simply no way that an

auctioneer will let an item to "pass" unsold without bidding one more

time, on behalf of the seller, to see whether that final bidder might be willing

to go a bit higher and get the deal done. There is no harm done when that happens:

if the deal does get done then everybody’s happy, and if it doesn’t then that’s

the same outcome as if no phantom bid had been made.

In Padua, then, the bidding reached some level below the reserve level of €300,000,

and the auctioneer put in a final chandelier bid of €240,000 to see if

the mysterious Belgian – or someone else – might be willing to go

higher. When that was not the case, the vehicle was passed – something

which auctioneers normally say quickly and quietly, since they don’t like to

admit that the sale didn’t get done.

If Signor Favia was trying to find the bidder, then, it wasn’t because he thought

he had just sold his car for €240,000 – he knew full well what the

reserve was; indeed, he certainly set that reserve price himself. The auctioneers

do indeed have their commission to consider – which is why, given their

druthers, they’d more than happily sell the car for €240,000 and pocket

that certain commission. Norris’s implication – that the auctioneers could

have sold the car but didn’t because they wanted a bigger commission –

simply makes no sense. People who regularly attend auctions soon begin to understand

all of this intutitively. But to the rest of us – including, it would

seem, the New Yorker’s fact-checkers – it can all get a bit confusing.