likely to be more valuable than those items without a guarantee, and this heterogeneity offsets any strategic effect that could be occurring by the guarantee. The art community has been critical of allowing bidding by outside guarantors, particularly in the toehold case as at Christie’s. Theory suggests that toeholds discourage outside bidders and can lead to lower prices. We conjecture that a policy change at Christie’s imposing a rule” would avert a potential to lower prices, while it would raise confidence of “no-toehold participants in the fairness of the auction mechanism. The policy would also make transaction prices more transparent, since the guarantor-buyer would not be buying at a discount relative to other buyers. The May 5, 2014, article describes guarantees as a speculative New York “fueling fever”. Our results find little evidence that guarantees are pushing prices up. References G. Adams and C. Burns (2011), Guaranteed Outcome, published online The Art Newspaper, March 2, 2011. A. Beggs and K. Graddy (2008), Failure to Meet the Reserve Price: The Impact on Returns to Art, 32: 310-320. Journal of Cultural Economics S. Betton and B. E. Eckbo (1995), Toeholds, Bid Jumps, and Expected Payoffs in Takeovers, 13: 841-882. Review of Financial Studies P. Boroff (2013), Sotheby’s Extends Guarantees to $166 Million Before Sales, Bloomberg, published online September 6, 2013. C. Burns (2013), New York Sales show How to Guarantee Success, Art Newspaper, published online November 28, 2013. R. Brearley and S. (1991), 4th edition, McGraw-Hill. Principles of Corporate Finance, J. Bulow, M. Huang, and P. Klemperer (1999), Toeholds and Takeovers, Journal of Political 107: 427-454. Economy M. Burkhart (1995), Initial Shareholdings and Overbidding in Takeover Contests, Journal of 50: 1491-1515. Finance K. Case and R. Shiller (1987), Prices of Single Family Homes since 1970: New Indexes
likely to be more valuable than those items without a guarantee, and this heterogeneity offsets any strategic effect that could be occurring by the guarantee. The art community has been critical of allowing bidding by outside guarantors, particularly in the toehold case as at Christie’s. Theory suggests that toeholds discourage outside bidders and can lead to lower prices. We conjecture that a policy change at Christie’s imposing a “no-toehold rule” would avert a potential to lower prices, while it would raise confidence of participants in the fairness of the auction mechanism. The policy would also make transaction prices more transparent, since the guarantor-buyer would not be buying at a discount relative to other buyers. The May 5, 2014, New York article describes guarantees as “fueling a speculative fever”. Our results find little evidence that guarantees are pushing prices up. References G. Adams and C. Burns (2011), Guaranteed Outcome, The Art Newspaper, published online March 2, 2011. A. Beggs and K. Graddy (2008), Failure to Meet the Reserve Price: The Impact on Returns to Art, Journal of Cultural Economics 32: 310-320. S. Betton and B. E. Eckbo (1995), Toeholds, Bid Jumps, and Expected Payoffs in Takeovers, Review of Financial Studies 13: 841-882. P. Boroff (2013), Sotheby’s Extends Guarantees to $166 Million Before Sales, Bloomberg, published online September 6, 2013. C. Burns (2013), New York Sales show How to Guarantee Success, Art Newspaper, published online November 28, 2013. R. Brearley and S. (1991), Principles of Corporate Finance, 4th edition, McGraw-Hill. J. Bulow, M. Huang, and P. Klemperer (1999), Toeholds and Takeovers, Journal of Political Economy 107: 427-454. M. Burkhart (1995), Initial Shareholdings and Overbidding in Takeover Contests, Journal of Finance 50: 1491-1515. K. Case and R. Shiller (1987), Prices of Single Family Homes since 1970: New Indexes
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