Felix Salmon has made a name for himself as an astute writer about markets. And he’s very knowledgeable about art. So it’s a mystery that he writes this:

The most interesting aspect of the hundred-million-dollar Giacometti is that it isn’t unique. “Chariot” comes from an edition of six—each of which, we can now assume, is worth roughly the same amount. When Giacometti made this sculpture, he didn’t create a hundred million dollars in present-day value; he created six hundred million dollars.

As Salmon well knows, price is set on the margin. So the $100 million for this Chariot is only achieved because four of the other five works are in museums. So, this Chariot is only worth $100m because the other Chariots are not accessible. The “value” of the six editions, then, is the purchase price of each work added together, not multiplied.

How do we know this? Because it has been demonstrated repeatedly in the auction market. An apt example would be the Matisse series of bronze backs. One set is in the garden of MoMA. In 2010, another one of the backs (No. 4) alone sold for $48.8m.

Wow. Doesn’t that mean a complete set of four would be worth, like, $200m?

That’s what the Burnett Foundation thought. So they decided to sell their complete set of four backs, one of the four or five complete sets in a museum (but theirs was on loan.) When it came time to sell, however, the final deal price was $120m instead of $200m. That’s $30m per back or 60% of what was paid just a year before.

Why the price drop? Because the $48m buyer of one back operated under the impression that the four backs on loan were never going to be sold. Had the buyer been able to see the future, she might have waited to get the whole set. Either way, with more backs coming on the market, the idea that a buyer would never get that chance again was punctured and the price pressure dropped somewhat. Also, one bidder from the previous year had already dropped out because they bought the first back. Fewer bidders make lower prices.

Sotheby’s and Giacometti’s hundred-million-dollar “Chariot” (The New Yorker)