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Auctions: The social construction of value
Journal of Economic North-Holland
Psychology
429
10 (1989) 429-436
BOOK REVIEWS
Charles W. Smith, Auctions: The Social Construction of Value. Harvester Wheatsheaf, London, 1989. pp. xii + 225, 525.00. $45.00. This is an important book. It offers a sociological theory of auctions to rival the economic view that auctions are economic exchanges in which individual buyer and seller preferences are matched. According to Smith auctions are social processes where buyers and sellers, acting as members of a group and with group interests in mind, attempt collectively to resolve questions of price and allocation in a way that will be acceptable to all parties. So, rather than being settled by the ‘hidden hand’ of the market, the price of an item sold at auction may depend on a variety of social circumstances. This argument is very timely and resonates with the recent work of a number of sociologists (e.g. Prus 1986; Pinch and Clark 1986) who have claimed that social processes underpin notions of economic exchange. The particular salience of the work on auctions is that for many economists, auctions and the ideal-typical models of economic behaviour which they generate, are the paradigmatic examples of economic exchange. They are the occasions on which individual buyers and sellers meet in order for a fair price to be set. An auction for an economist is the crossroads where market supply and demand curves meet. It is easy to recognise that social factors can intrude into auctions. At the Keeneland horse auction in 1985 the all-time record for a thoroughbred yearling was set at $13,100,000. In subsequent years the highest prices paid were $3,600,00 and $3,700,000. What caused the 1985 variation when factors such as quality of the horses, race purses and tax laws stayed constant? The answer, as Smith shows, is that in 1985 the British race horse owner Robert Sangster bid in fierce competition against a group of Sheiks from Dubai and this generated the huge price. In subsequent years Sangster and the Sheiks worked in ‘partnership’, thus preventing such a large sum being paid again. At the 0167-4870/89/$3.50
0 1989, Elsevier Science Publishers
B.V. (North-Holland)
430
Book reviews
other extreme can be found bankruptcy auctions following, for instance, a farm foreclosure. Often members of the local community attend in great numbers. Their aim is to prevent a proper auction taking place because they may be the next person to go bankrupt and have their goods auctioned off in this way. On these occasions organized cooperative bidding ensures that bids are kept so low that it becomes counter-productive for the bank to carry on. What these cases illustrate is that different social relationships between the buyers attending an auction can lead to radically different prices being set. If the buyers act cooperatively as in the case of auction ‘rings’ one set of price outcomes will ensue, whilst if they act competitively different (and higher) price outcomes are likely. Economists, of course, may be prepared to acknowledge such distortions from the pure model of auction behaviour, granting that that is what they are - distortions. In such cases extraneous social variables brought about by the failure to organise the auction in a satisfactory manner have entered to perturb market mechanisms. One is reminded here of a parallel debate between the sociology and philosophy of science. Philosophers argue that scientific progress is by and large rational, but this does not mean that unfortunate social distortions cannot occur to subvert the process. The rise of the Soviet Lamarckian geneticist, Lysenko, under Stalin is the much quoted example of how a social factor can intervene to distort the normally rational process of science. In the long run Lysenko was discredited and truth and rationality prevailed. Likewise the economist can maintain that over the long run and in most cases auctions will follow rational mechanisms. The way the rationalist argument has been countered in the sociology of scientific knowledge has been to focus upon day-to-day scientific practices and show how knowledge is routinely socially constructed. In other words, it is not only ‘false’ knowledge which is socially constructed, but ‘true’ knowledge as well. Indeed, what counts as ‘truth’ or ‘falsity’ is settled by social processes. A symmetrical sociological explanation of science must not seek to provide one set of explanations for knowledge which is taken to be ‘true’ and another for knowledge which is taken to be ‘false’ (Bloor 1976; Pinch 1986). Similarly if we are to mount the strongest challenge to the economists then it is not only the few cases of obvious price distortion which must be examined. Rather it is the normal routine conduct of the majority of auctions which should become the object of attention. Smith’s book is
Book reviews
431
important because he does do precisely this. He examines a whole variety of auctions to be found in contemporary America. These include the New England fish auction held at dawn every morning in a commercial warehouse on the quay-side in Boston, the auction of paper-back rights amongst publishers in Manhattan, the prestigious Keeneland Breeding Stock Sale of horses held at Saratoga and Lexington, tobacco auctions in Kentucky, commodity auctions held in small rural communities in upstate New York, automobile auctions in New York City, fine art auctions such as held at Sotheby’s and Christie’s, and charity auctions. One gets the impression that over the period of seven years Smith spent on this research he has attended just about every possible type of auction. The first thing which is striking about these auctions is the great variety of practices evident. For instance, in the fish auction the different catches from particular boats are provisionally allocated on the basis of displays of interest from bidders before a price is even mentioned. Then a highly complex form of bidding and bartering ensues within a fixed time schedule (five minutes per type of fish). Some auctions are open to the public at large (e.g. rural commodity auctions), other (e.g. tobacco auctions and book right auctions) are attended only by specialist buyers. The different practices found in terms of for instance, reserve prices, floor bids, whether sellers or auctioneers are themselves permitted to bid, whether items are sold en masse (e.g. fish) or exclusively (e.g. horses), whether time constraints are imposed, the size of bid increments, and whether rings are permitted, demonstrates the richness of real-life auctions as opposed to the economic model. This book provides exhaustive coverage of the different practices including those found amongst dealer ‘rings’. Smith seems to have obtained inside knowledge of the various practices and the book if nothing else offers a fascinating account of a neglected topic. One chapter uses sociologist Erving Goffman’s dramaturgical model of social life to talk about the auction as a show. For instance, participating at an auction requires a complex series of social skills. The most skillful job of all is, of course, that of the auctioneer who must constitute a sometimes ragged crowd as a community who will act cohesively together and present the goods for auction in a way which produces the best deal for the seller but at the same time is fair to all buyers and, most importantly of all, run the auction in a way whereby the community at large deems the auction to have been fair and proper.
432
Book reviews
Participation as a buyer requires skill too, such as in knowing how to indicate your bid and what increment is appropriate. Auctions are often accompanied by laughter, banter and spontaneous applause - in short they are public events governed by subtle and complex rules of social behaviour. For instance, seemingly trivial matters such as the auctioneer’s use of humour can be strategically important for managing residual tensions between the different interest groups. Why do auctions happen when there are perfectly acceptable conventional ways of settling the price and ownership of objects, such as by fixed-price arrangements or sales by private treaty? Smith’s argument here, and it seems utterly convincing, is that auctions are held precisely in those circumstances where the conventional ways of establishing price and ownership are inadequate. This may be because the item is old or used (e.g. second-hand cars, antiques, household commodities), because there is something special or unique about the object (e.g. John Lennon’s Rolls-Royce) or because the quality may be varied (as with natural products such as fish and tobacco). As Smith puts it, ‘auctions serve as rites of passage for objects shrouded in ambiguity and uncertainty’ (p. x). The auction from the viewpoint of sociology is a process whereby socially legitimated definitions of value and provenance are established. The key point about auctions according to Smith is that the processes whereby value and ownership are settled are social processes. Auctions serve to create and reproduce social definitions of value and the relationships amongst participants. All acts of economic exchange are ultimately social but the social rules and norms which govern routine economic exchange are so much part of the taken-for-granted fabric of social life that they are not normally manifest. For instance, when the shop marks the price of an object as &50 it is this amount which you normally expect to pay. If when you hand over your money the shop keeper says that there is a special offer on and the object is reduced to &45 you are perfectly happy to pay less. However, if the shopkeeper says that meanwhile the price has gone up to 255 then you are unhappy. Some social norm of how such exchanges are organised has been transgressed. The beauty of auctions, and why they make such a good research site for studying the social rules of economic exchange, is that the auctioning process tends to make explicit what the taken-forgranted rules are. The participants at an auction render those rules as inspectable and accountable in the process of managing the auction as
Book reviews
433
an orderly social phenomenon. Notions such as individual preferences and the very act of economic exchange are constituted and reconstituted in the course of the auction. With this conception of auctions one can start to identify the different types of uncertainties present in auctions and the different groups involved and then go on to show that the different specific practices encountered can be understood in terms of how such groups’ interests and uncertainties are locally managed. The interactional management of the auction must be carried out in a way to sustain its legitimacy for participants and furthermore to maintain its legitimacy in relationship to the wider community or social structure. It is the enabling and constraining features of norms as developed in Giddens’ structuration theory which lies at the core of Smith’s analysis here. The most telling contribution in the book is Smith’s identification of three different types of auction. In ‘sale’ auctions where art and one-of-a-kind items tend to be sold, there are often fluctuations in price in accordance with the whims and hunches of various bidders. In ‘dealer’ auctions there is much more price stability and it is mainly collectibles that are sold. A shared wisdom exists over the appropriate value of the objects and this is based in the community of professional dealers and reinforced by their professional publications. Although individuals may participate they will be subject to the constraints of the collective view. ‘Exchange’ auctions are characterised by the sale of commodities such as fish and there are a set of regular buyers who will re-sell the goods in other markets. In such cases it is on-going practices based upon a ‘market’ in like commodities which provides the main set of constraints. Although these three types of auction have overlaps it can be seen that the constraints in operation are located in three different areas. In sale auctions they are rooted most in individual psyches, in dealer auctions in various publications and face-to-face interactions which make up the collective wisdom, and in exchange auctions in the patterns of behavioural practices within which the auction is embedded. One consequence of this analysis is that it can be seen that the type of auction which most corresponds to the economist’s ideal-typical model is that of the sale auction. Of course, even here, as Smith shows, individual preferences are managed within a social environment. It is perhaps no coincidence that it is this type of auction which most exercises the public imagination.
434
Book reviews
My only criticism of this impressive book is that I found the conceptual sophistication of the argument was not always matched by the data. Because much of what goes on in an auction is in the public domain, audio and video recordings (of which Smith has several) provide a unique record by which to substantiate many of the points. When such data is interpreted alongside insider understanding one has a powerful vehicle for analysis with which to confront the economist. I was surprised that given Smith’s interest in auctions as interactional phenomena he seemed to put such material to such little use. Often we depend upon his own claims as to how such processes work. By choosing to locate his analysis within the mainly macro concerns of structuration theory I fear that some of the detailed understanding of auctions as interactional processes may have been lost. The need to study such details is crucial because it is precisely here where microeconomics is at its weakest. The economic model fails because it is too far from real human behaviour. It would be ironic if a sociological critique also lacked compulsion because it too was divorced from the concrete social practices of interaction within which economic exchange is embedded. Trevor Pinch Dept. of Sociology University of York Heslington, YOI 5DD UK
References Bloor, David, 1976. Knowledge and social imagery. London: Routledge and Kegan Paul. Pinch, Trevor, 1986. Confronting nature: The sociology of solar-neutrino detection. Dordrecht: Reidel Pinch, Trevor and Cohn Clark, 1986. The hard sell: ‘Patter merchanting’ and the strategic (re)production and local management of economic reasoning in the sales routines of market pitchers. Sociology 20, 169-191. Prus, R., 1986. It’s on sale! Vendor perspectives on the bargain. Canadian Review of Sociology and Anthropology 23, 72-96.
Psychology
429
10 (1989) 429-436
BOOK REVIEWS
Charles W. Smith, Auctions: The Social Construction of Value. Harvester Wheatsheaf, London, 1989. pp. xii + 225, 525.00. $45.00. This is an important book. It offers a sociological theory of auctions to rival the economic view that auctions are economic exchanges in which individual buyer and seller preferences are matched. According to Smith auctions are social processes where buyers and sellers, acting as members of a group and with group interests in mind, attempt collectively to resolve questions of price and allocation in a way that will be acceptable to all parties. So, rather than being settled by the ‘hidden hand’ of the market, the price of an item sold at auction may depend on a variety of social circumstances. This argument is very timely and resonates with the recent work of a number of sociologists (e.g. Prus 1986; Pinch and Clark 1986) who have claimed that social processes underpin notions of economic exchange. The particular salience of the work on auctions is that for many economists, auctions and the ideal-typical models of economic behaviour which they generate, are the paradigmatic examples of economic exchange. They are the occasions on which individual buyers and sellers meet in order for a fair price to be set. An auction for an economist is the crossroads where market supply and demand curves meet. It is easy to recognise that social factors can intrude into auctions. At the Keeneland horse auction in 1985 the all-time record for a thoroughbred yearling was set at $13,100,000. In subsequent years the highest prices paid were $3,600,00 and $3,700,000. What caused the 1985 variation when factors such as quality of the horses, race purses and tax laws stayed constant? The answer, as Smith shows, is that in 1985 the British race horse owner Robert Sangster bid in fierce competition against a group of Sheiks from Dubai and this generated the huge price. In subsequent years Sangster and the Sheiks worked in ‘partnership’, thus preventing such a large sum being paid again. At the 0167-4870/89/$3.50
0 1989, Elsevier Science Publishers
B.V. (North-Holland)
430
Book reviews
other extreme can be found bankruptcy auctions following, for instance, a farm foreclosure. Often members of the local community attend in great numbers. Their aim is to prevent a proper auction taking place because they may be the next person to go bankrupt and have their goods auctioned off in this way. On these occasions organized cooperative bidding ensures that bids are kept so low that it becomes counter-productive for the bank to carry on. What these cases illustrate is that different social relationships between the buyers attending an auction can lead to radically different prices being set. If the buyers act cooperatively as in the case of auction ‘rings’ one set of price outcomes will ensue, whilst if they act competitively different (and higher) price outcomes are likely. Economists, of course, may be prepared to acknowledge such distortions from the pure model of auction behaviour, granting that that is what they are - distortions. In such cases extraneous social variables brought about by the failure to organise the auction in a satisfactory manner have entered to perturb market mechanisms. One is reminded here of a parallel debate between the sociology and philosophy of science. Philosophers argue that scientific progress is by and large rational, but this does not mean that unfortunate social distortions cannot occur to subvert the process. The rise of the Soviet Lamarckian geneticist, Lysenko, under Stalin is the much quoted example of how a social factor can intervene to distort the normally rational process of science. In the long run Lysenko was discredited and truth and rationality prevailed. Likewise the economist can maintain that over the long run and in most cases auctions will follow rational mechanisms. The way the rationalist argument has been countered in the sociology of scientific knowledge has been to focus upon day-to-day scientific practices and show how knowledge is routinely socially constructed. In other words, it is not only ‘false’ knowledge which is socially constructed, but ‘true’ knowledge as well. Indeed, what counts as ‘truth’ or ‘falsity’ is settled by social processes. A symmetrical sociological explanation of science must not seek to provide one set of explanations for knowledge which is taken to be ‘true’ and another for knowledge which is taken to be ‘false’ (Bloor 1976; Pinch 1986). Similarly if we are to mount the strongest challenge to the economists then it is not only the few cases of obvious price distortion which must be examined. Rather it is the normal routine conduct of the majority of auctions which should become the object of attention. Smith’s book is
Book reviews
431
important because he does do precisely this. He examines a whole variety of auctions to be found in contemporary America. These include the New England fish auction held at dawn every morning in a commercial warehouse on the quay-side in Boston, the auction of paper-back rights amongst publishers in Manhattan, the prestigious Keeneland Breeding Stock Sale of horses held at Saratoga and Lexington, tobacco auctions in Kentucky, commodity auctions held in small rural communities in upstate New York, automobile auctions in New York City, fine art auctions such as held at Sotheby’s and Christie’s, and charity auctions. One gets the impression that over the period of seven years Smith spent on this research he has attended just about every possible type of auction. The first thing which is striking about these auctions is the great variety of practices evident. For instance, in the fish auction the different catches from particular boats are provisionally allocated on the basis of displays of interest from bidders before a price is even mentioned. Then a highly complex form of bidding and bartering ensues within a fixed time schedule (five minutes per type of fish). Some auctions are open to the public at large (e.g. rural commodity auctions), other (e.g. tobacco auctions and book right auctions) are attended only by specialist buyers. The different practices found in terms of for instance, reserve prices, floor bids, whether sellers or auctioneers are themselves permitted to bid, whether items are sold en masse (e.g. fish) or exclusively (e.g. horses), whether time constraints are imposed, the size of bid increments, and whether rings are permitted, demonstrates the richness of real-life auctions as opposed to the economic model. This book provides exhaustive coverage of the different practices including those found amongst dealer ‘rings’. Smith seems to have obtained inside knowledge of the various practices and the book if nothing else offers a fascinating account of a neglected topic. One chapter uses sociologist Erving Goffman’s dramaturgical model of social life to talk about the auction as a show. For instance, participating at an auction requires a complex series of social skills. The most skillful job of all is, of course, that of the auctioneer who must constitute a sometimes ragged crowd as a community who will act cohesively together and present the goods for auction in a way which produces the best deal for the seller but at the same time is fair to all buyers and, most importantly of all, run the auction in a way whereby the community at large deems the auction to have been fair and proper.
432
Book reviews
Participation as a buyer requires skill too, such as in knowing how to indicate your bid and what increment is appropriate. Auctions are often accompanied by laughter, banter and spontaneous applause - in short they are public events governed by subtle and complex rules of social behaviour. For instance, seemingly trivial matters such as the auctioneer’s use of humour can be strategically important for managing residual tensions between the different interest groups. Why do auctions happen when there are perfectly acceptable conventional ways of settling the price and ownership of objects, such as by fixed-price arrangements or sales by private treaty? Smith’s argument here, and it seems utterly convincing, is that auctions are held precisely in those circumstances where the conventional ways of establishing price and ownership are inadequate. This may be because the item is old or used (e.g. second-hand cars, antiques, household commodities), because there is something special or unique about the object (e.g. John Lennon’s Rolls-Royce) or because the quality may be varied (as with natural products such as fish and tobacco). As Smith puts it, ‘auctions serve as rites of passage for objects shrouded in ambiguity and uncertainty’ (p. x). The auction from the viewpoint of sociology is a process whereby socially legitimated definitions of value and provenance are established. The key point about auctions according to Smith is that the processes whereby value and ownership are settled are social processes. Auctions serve to create and reproduce social definitions of value and the relationships amongst participants. All acts of economic exchange are ultimately social but the social rules and norms which govern routine economic exchange are so much part of the taken-for-granted fabric of social life that they are not normally manifest. For instance, when the shop marks the price of an object as &50 it is this amount which you normally expect to pay. If when you hand over your money the shop keeper says that there is a special offer on and the object is reduced to &45 you are perfectly happy to pay less. However, if the shopkeeper says that meanwhile the price has gone up to 255 then you are unhappy. Some social norm of how such exchanges are organised has been transgressed. The beauty of auctions, and why they make such a good research site for studying the social rules of economic exchange, is that the auctioning process tends to make explicit what the taken-forgranted rules are. The participants at an auction render those rules as inspectable and accountable in the process of managing the auction as
Book reviews
433
an orderly social phenomenon. Notions such as individual preferences and the very act of economic exchange are constituted and reconstituted in the course of the auction. With this conception of auctions one can start to identify the different types of uncertainties present in auctions and the different groups involved and then go on to show that the different specific practices encountered can be understood in terms of how such groups’ interests and uncertainties are locally managed. The interactional management of the auction must be carried out in a way to sustain its legitimacy for participants and furthermore to maintain its legitimacy in relationship to the wider community or social structure. It is the enabling and constraining features of norms as developed in Giddens’ structuration theory which lies at the core of Smith’s analysis here. The most telling contribution in the book is Smith’s identification of three different types of auction. In ‘sale’ auctions where art and one-of-a-kind items tend to be sold, there are often fluctuations in price in accordance with the whims and hunches of various bidders. In ‘dealer’ auctions there is much more price stability and it is mainly collectibles that are sold. A shared wisdom exists over the appropriate value of the objects and this is based in the community of professional dealers and reinforced by their professional publications. Although individuals may participate they will be subject to the constraints of the collective view. ‘Exchange’ auctions are characterised by the sale of commodities such as fish and there are a set of regular buyers who will re-sell the goods in other markets. In such cases it is on-going practices based upon a ‘market’ in like commodities which provides the main set of constraints. Although these three types of auction have overlaps it can be seen that the constraints in operation are located in three different areas. In sale auctions they are rooted most in individual psyches, in dealer auctions in various publications and face-to-face interactions which make up the collective wisdom, and in exchange auctions in the patterns of behavioural practices within which the auction is embedded. One consequence of this analysis is that it can be seen that the type of auction which most corresponds to the economist’s ideal-typical model is that of the sale auction. Of course, even here, as Smith shows, individual preferences are managed within a social environment. It is perhaps no coincidence that it is this type of auction which most exercises the public imagination.
434
Book reviews
My only criticism of this impressive book is that I found the conceptual sophistication of the argument was not always matched by the data. Because much of what goes on in an auction is in the public domain, audio and video recordings (of which Smith has several) provide a unique record by which to substantiate many of the points. When such data is interpreted alongside insider understanding one has a powerful vehicle for analysis with which to confront the economist. I was surprised that given Smith’s interest in auctions as interactional phenomena he seemed to put such material to such little use. Often we depend upon his own claims as to how such processes work. By choosing to locate his analysis within the mainly macro concerns of structuration theory I fear that some of the detailed understanding of auctions as interactional processes may have been lost. The need to study such details is crucial because it is precisely here where microeconomics is at its weakest. The economic model fails because it is too far from real human behaviour. It would be ironic if a sociological critique also lacked compulsion because it too was divorced from the concrete social practices of interaction within which economic exchange is embedded. Trevor Pinch Dept. of Sociology University of York Heslington, YOI 5DD UK
References Bloor, David, 1976. Knowledge and social imagery. London: Routledge and Kegan Paul. Pinch, Trevor, 1986. Confronting nature: The sociology of solar-neutrino detection. Dordrecht: Reidel Pinch, Trevor and Cohn Clark, 1986. The hard sell: ‘Patter merchanting’ and the strategic (re)production and local management of economic reasoning in the sales routines of market pitchers. Sociology 20, 169-191. Prus, R., 1986. It’s on sale! Vendor perspectives on the bargain. Canadian Review of Sociology and Anthropology 23, 72-96.