Why a Birkin Bag and a Sled Are Similar

Recently, bidders offered $10.1 million for a purse while a sled sold for $14.75 million.

By looking at auction economics, we can understand those gob smacking prices.

Auction Prices

Birkin Bags

It would be tough to buy a Birkin bag in a Hermès boutique because supply is so limited. Another possibility is a Sotheby’s auction of “preowned” purses. But then the price could be much higher.

The original Birkin bag with the $10.1 million price tag was owned by Jane Birkin:

The Rosebud Sled

To buy the Citizen Kane Rosebud sled, someone spent $14.5 million at a movie props auction.

This is the story behind the sled:

Our Bottom Line: Auction Economics

As economists, we can use game theory to explain auction economics.

The prisoner’s dilemma is a classic example of game theory because your success depends on someone else’s decision. When two partners in crime are arrested, one knows that if he confesses and his partner does not, then he will go free. But if both keep quiet, they go to jail for one year. Because they are questioned separately, no one knows what the other has said. But the results depend on how much the other person admitted.

The prisoner’s dilemma? Keep quiet or confess:

Similarly, bidding for a purse or a sled, the auction participant does not know what others will offer. But what they decide will determine his success. As a result, like the prisoner’s dilemma, one person’s bid depends on what he knows and what he thinks others know. It also relates to the kind of auction. I am assuming that the purse and the sled were in English auctions. Then, people would have presented ascending prices until the highest won.

The bidder’s dilemma? He does not want his price to be too high or too low. And, that depends on everyone else.

My sources and more: At econlife, we detailed the price of a Birkin bag. Meanwhile, CNN and Axios told us about the price of the sled. Then, the St. Louis Fed provided insight about auction economics. But most of all do take a look at the two Stanford economists that were awarded the 2020 Nobel Memorial Prize in Economics for their auction research.

Please note that several of today’s sentences were in past econlife posts.