The Art Auction Market: Polish Insights with Global Relevance

In 2024, we are experiencing a bit of a slump in the art market, but there are still valuable lessons to draw from earlier trends. While the insights below were published in a different economic climate with a Polish art market focus, particularly following the COVID-19 pandemic, many of the principles remain relevant for today’s art collectors.

Since the onset of the COVID-19 pandemic, the Polish art auction market saw substantial shifts. Auctions thrived, buoyed by inflation and a desire among buyers to seek tangible, alternative investments like art. The market for what was known as "glittery" art—artworks featuring vibrant and fantastical themes, often created by emerging or previously overlooked artists—experienced heightened demand (Drabik, 2023, 115). At the time, Polish art auctions saw a surge in activity, with record-breaking sales and a growing interest in "young artists" and contemporary styles.

The turnover of the Polish art market alone grew by an impressive 71.9% in the first half of 2021 compared to the same period in 2020, highlighting a global trend of art being viewed as a form of investment during uncertain economic times (Drabik, 2023, 126). However, given the current slowdown in the market, these figures might not hold as strongly today, though the lessons from this period remain useful.

Types of Auctions and Their Strategic Importance

Understanding different auction types is crucial for any art collector aiming to maximize value. The Polish art market, like many others, uses various auction formats, each with its own strategic considerations. The most common types include the English auction, Dutch auction, first-price auction, and second-price auction (Drabik, 2023, 116).

Mastering the English Auction

The English auction, a format widely used in Poland and internationally, involves bidders openly outbidding each other until the highest bid wins. This auction style, though transparent, often leads to the "winner's curse," where the winning bidder pays more than the actual value of the piece due to the emotional nature of the bidding war (Drabik, 2023, 117).

To avoid falling into this trap, collectors should always set a firm budget before entering the auction. It’s also advisable to conduct extensive research on the artwork's estimated market value. Staying level-headed during bidding is essential, as emotional decisions can result in overspending.

Second-Price Auctions Can Be a Safer Bet

The second-price auction, also known as the Vickrey auction, offers a different strategic advantage. In this auction type, the highest bidder wins, but they only pay the second-highest bid. This reduces the risk of overpaying and encourages participants to bid closer to their true valuation of the artwork (Drabik, 2023, 117).

This format is particularly useful in online auctions, where many Polish auction houses have expanded their reach. Collectors should keep an eye out for second-price auctions as they are increasingly being used in digital sales, offering an opportunity for a more balanced bidding environment.

Navigating Risks: The Dark Side of the Art Market

While art auctions present great opportunities, they are not without risks. The art market, both in Poland and globally, has long been a target for money laundering activities. The high value and anonymity associated with art transactions make them ideal vehicles for illicit financial activities (Drabik, 2023, 126). This issue has become even more prevalent with the rise of online auctions and the growing internationalization of the art market.

Conduct Thorough Due Diligence

For collectors purchasing high-value artworks, especially through international or online auctions, it’s crucial to verify the provenance of the piece. Collectors should work with reputable auction houses like Sotheby’s, Christie’s, or Poland’s own DESA Unicum to ensure the legitimacy of the transaction (Drabik, 2023, 120).

Further, collectors should be mindful of anti-money laundering (AML) laws and regulations, particularly when dealing with cross-border transactions. It’s wise to consult legal or financial experts familiar with AML practices in the art market to avoid becoming entangled in illicit activities, even inadvertently.

Diversifying Collections Through International Auctions

Diversification is a cornerstone of sound investment strategy, and the art market is no different. Collectors in Poland and elsewhere should look beyond their local market and consider participating in international auctions. Major cities like New York, London, and Hong Kong are home to some of the most prestigious auction houses, offering access to rare and valuable works that may not be available locally (Drabik, 2023, 119).

Leverage Digital Platforms for Global Access

The shift to online auctions has allowed collectors worldwide to participate in sales that were once geographically exclusive. In Poland, for instance, auction houses like DESA Unicum have embraced online platforms, connecting Polish art with a global audience. Similarly, China’s Poly Auction House has rapidly expanded its reach, becoming a major player on the global stage (Drabik, 2023, 120).

Collectors can capitalize on this by broadening their search beyond national borders. However, it’s important to be cautious when participating in online auctions. The condition of an artwork may not always be accurately represented, and returns policies vary between platforms. It’s advisable to work with auction platforms that offer guarantees to ensure peace of mind when purchasing remotely.

Managing Asymmetry: Addressing Information Gaps in Auctions

The art auction market, particularly in Poland, often suffers from asymmetries in information. This can lead to inefficiencies where less-informed buyers may either overpay or miss out on valuable opportunities. Such asymmetries also open the door to speculative practices, where artworks are artificially inflated in value (Drabik, 2023, 125).

Combat Asymmetry with Research and Expert Advice

To navigate these information asymmetries, collectors should arm themselves with as much knowledge as possible. This includes tracking auction trends, understanding the history and provenance of particular artworks, and being aware of which artists are currently in high demand. Working with auction platforms that offer guarantees is still advisable to ensure peace of mind when purchasing remotely. Platforms like Art Collector IQ help bridge this gap, offering collectors reliable data to make informed decisions.

In some instances, particularly in fast-moving markets like those for contemporary or "glitter" art, auctions can involve manipulative practices like “chandelier bidding,” where false bids artificially drive up prices. Working with a trusted advisor or Art Collector IQ can help collectors avoid such pitfalls and ensure that they are bidding within a fair market range (Drabik, 2023, 126).

Conclusion

The insights and strategies derived from the Polish art auction market offer valuable lessons for collectors worldwide. Whether you are investing in emerging "young artists" participating in international online auctions, or carefully navigating the risks of asymmetrical information, a strategic and informed approach is key to successful collecting.

Whether the art market is booming or busting, collectors must stay adaptable and forward-thinking. Whether bidding in an English auction or a second-price auction, or diversifying your collection through international sales, the principles of smart, researched, and measured bidding apply across the board. As art continues to prove itself a viable investment class, these strategies will help collectors maximize both the aesthetic and financial value of their acquisitions.

References

Drabik, Ewa. "A Few Notes on Art Auctions." Foundations of Management 15 (2023): 115-127.