The three stages of an auction: how do the bid dynamics influence auction prices? Evidence from live art auctions

This research examines whether and how the bid dynamics influence the final price, using a unique hand-collected database gathering bid dynamics of artworks auctioned live by a human auctioneer. Specifically, we study the degree of aggressiveness of bids and the pace of the auction resulting from the succession of bids, at the three main stages of an auction. We first find that bid dynamics are not neutral towards final auction prices. In line with our theoretical framework, this result confirms the importance of bidders’ “fuzzy” reserve prices which explains why bidders adopt strategic behaviors. We then find that the auction price particularly benefits from the presence of “motivated” bidders, i.e. bidders who bid aggressively (high and quickly) to win the auction and do not seek for a bargain, especially at the beginning and end of the auction. At the end however, this positive impact of aggressive bidding may be attenuated by a despondency effect affecting some bidders. Moreover, we find that early arousal, which also contributes to provide valuable information on the artwork’s common value, boosts the price. Lastly, we show that ultimate duels between bidders increase final prices. Overall, this paper proposes a primer conceptual framework of bidders’ fuzzy reserves. This investigation contributes to the understanding of bidding behaviors by offering an easily understandable insight into bid dynamics, and by analyzing the case of live auctions of hedonic products that have received few attention until now.