On guarantees

“The auction houses are also helping to boost the market and reduce volatility through a nifty trick called a “third-party guarantee” or “irrevocable bid”, through which they sell a work before the auction for a minimum price. This becomes the “reserve” below which the artwork will not sell. The guarantee gives the seller the confidence to consign a work and other potential bidders the reassurance that there is somebody out there willing to buy it. However, these financial agreements are secret and riddled with potential conflicts of interest. Many dealers, such as David Nash, a partner in Mitchell-Innes & Nash, argue that they distort the free market.”

The Economist blog Prospero.

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