Newsletters › The Price of Everything
In 2010 three bottles of Château Lafite-Rothschild 1869 sold for $230,000 each. The three bottles of wine sold for the same amount as “No One Ever Leaves,” artwork by Jim Hodges that was sold at a Sotheby’s auction in 2007 for $690,000 or the advertised price for this one bedroom apartment in the Upper East Side of Manhattan. Was the wine worth it? How about the piece of art? Take this Mandel Bhandari quiz to see how good you are at spotting expensive things.
Wine and fine art are prime examples of a class of goods and services that Professor Lucien Karpik calls “singularities.” The services of many professionals such as psychotherapists and lawyers also fall in this category. Such products are either unique or sufficiently differentiated to make comparison among competing goods difficult and pricing highly idiosyncratic.
In a fascinating book titled The $12 Milllon Stuffed Shark, Don Thompson describes how contemporary art is priced. Auctioneers and dealers will tell you that it is impossible to “underestimate how insecure buyers are about contemporary art, and how much they always need reassurance.” This is in part because fine art is a “positional” good” – an object purchased not for its intrinsic value but to demonstrate one’s wealth to others. As Thompson explains, “A great many people can afford a small yacht. But art distinguishes you.”
When buying art, collectors rely upon brands. An iconic museum’s ownership and display of an artist’s work demonstrates its value and importance. So does a famous (or infamous) auction house’s offering of a work. Certain dealers and collectors are sufficiently well-regarded to have achieved brand-status. These brands are so important that artists and their dealers will sell works to certain museums and collectors at steep discounts. Joseph Henry Duveen, a legendary nineteenth century dealer, would actually bring Metropolitan Museum of Art trustees with him to visit clients. In order to close the sale, Duveen would tell the collector that she would only be permitted to purchase the piece if she promised to donate it to the Museum in the future.
According to Thompson, the most important factor in dealers’ pricing of works is what those prices signal to collectors. For example, with an “emerging” artist (which is how the art world refers to a new artist), it is critical that the artist’s prices increase at each of her successive shows. In order to control prices, some high-level dealers require buyers to provide the dealer with a right of first refusal on any subsequent sale. Others dealers stop selling to collectors who quickly sell their purchases or sell them at a time and place that the dealers find unsatisfactory. Because prices are such strong indicators of value, even a few sales at prices that are at or below earlier sales may signal that the artist has fallen out of favor. And unlike traditional markets, increases in the supply of an artist’s work do not generally lead to a decrease in prices: where more of an artist’s work is shown at more galleries, it often increases the demand for the artist.
Many lawsuits are also “singularities.” Even in “ordinary business disputes,” many contracts are unique, with language and obligations that exist nowhere else. And, when a contract is broken, parties often suffer unique harms to their business or reputation. Unlike fine wine (Wine Spectator and Robert Parker) and cuisine (The Michelin Guide), there is no guide or organization to tell you what a lawsuit is worth. Even if you have friends who have brought lawsuits, there is no reason to believe your lawsuit is worth what your friends’ lawsuits are worth.
Faced with this challenge, lawyers use different methods to value lawsuits. Some lawyers search verdict databases to see how similar lawsuits were resolved. In a high-stakes business dispute, large companies sometimes employ panels of outside lawyers to value the case. But often the most accurate way of valuing a lawsuit is to conduct mock juries or focus groups. There is no substitute for real people looking at the specific facts and personalities at play in a unique case.Ultimately all lawsuits are valued – either in a settlement or in a judgment. But that is not the case with wine and other consumable singularities. And if you’re having trouble figuring out what your wine is worth, you can always just drink it. In fact, The Wall Street Journal writers Dorothy J. Gaiter and John Brecher invented Open that Bottle Night to encourage people to do precisely that. OTBN is an opportunity to open a special bottle of wine that might not otherwise ever be opened. The good news is that it is celebrated on the last Saturday in February, so it is right around the corner!