Factoids abound in our society. You’ve undoubtedly heard a few; they are viewpoints often accepted as true but are generally false. For example, Twinkies don’t remain edible for decades (they’ll last about twenty-five days); Chopin’s Minute Waltz is so named because it’s a small piece, not because it can be played in one minute (it takes two, as written); and rare antiques are always valuable (they’re not; age and rarity alone are not reliable indicators of value). How do we determine the market value of rarity?
The Fallacy of Supply and Demand
We often hear pricing antiques is simply a matter of supply and demand. Our industry even has software products that aggregate prices and suggest high, low, and medium price points. But this method doesn’t work. There are too many variables in antiques and collectibles. Items must be judged by their individual characteristics and not lumped together with objects in the same category.
A basic textbook for economics courses is Adam Smith’s 1776 book, The Wealth of Nations. Smith proposes what we know as “The Law of Supply and Demand,” in which abundant supply plus weak demand lowers prices, and low supply plus strong demand raises prices. Smith’s theory is formed around broad swaths of capitalist economies: aggregated manufactured goods and commodities.
For more than 240 years, economists have disputed Smith’s theory, but it has somehow become a bedrock economic principle in our schools and public perception. But “The Law of Supply and Demand” alone is inadequate for running a 21st-century antiques business because it leads to buying and pricing errors.
Antiques and collectibles—even those of the same make, model, and age—will vary in condition, provenance, demand, and rarity. They can’t be aggregated into broad categories and prices averaged, nor should they be. In 2019, Richard M. Ebeling wrote for the American Institute for Economic Research:
“But when the level of aggregation is taken … in relation to the supply of all goods as a whole … aggregate demand and aggregate supply become conceptually meaningless and factually nonexistent.”
The Market Value of Rarity
It is often thought that antiques in low supply (rare) must automatically be valuable. But they are not. Someone must want to buy it. Here’s the reality:
- An item can be antique but not rare.
- An item can be rare but not antique.
- An item can be both antique and rare but not valuable.
Demand for an item drives its price. But how much demand is needed to create value in a rare piece? Only two people are required: the one who owns it and another who wants it. Demand can be low (only one buyer), but the price can be high (the seller wants more money). When a buyer and a seller agree on a price, neither under duress, they have agreed on a market value for the item. Further, if more than one buyer is available, demand increases, and Smith’s theory kicks in: the item has a low supply but higher demand. The price of the item goes up.
Macroeconomics Versus Microeconomics
The antiques and collectibles business doesn’t fit neatly into any economics theory. There are too many variables to aggregate our products into predictable categories. So the next time someone says to you, “That’s really old—it must be worth a lot of money,” you can give them an insightful smile because you know the market value of rarity.
Will Seippel is the CEO and founder of WorthPoint®, the world’s largest provider of information about art, antiques, and collectibles. An Inc. 500 Company, WorthPoint is used by individuals and organizations seeking credible valuations on everything from cameras to coins. WorthPoint counts the Salvation Army, Habitat for Humanity, and the IRS among its clients.