Huge art prices have many people concerned that we are experiencing another art market bubble. In truth, the market is more complicated than the flashy headlines suggest:

• Auction houses concentrate their efforts on the top of the market to get consignments and publicity. They cut deals to get choice works, tilting the playing field in favor of certain sellers and buyers.

• The auction houses’ publicity machines concentrate on record prices, and for the most part the press happily plays along. No one is much interested in covering the middle market, though this represents the bulk of sales activity.

• The lower end of the market holds the most appeal for speculators, because it offers the greatest potential for growth.

• Activity is most visible at the top and the bottom of the art market. Relatively rapid turnover at ever-escalating prices creates the illusion of infinite profitability in both sectors.

• However, if too many people decide to cash out, supply can quickly outstrip demand, and prices drop.

Part II: What Do Auction Prices Really Mean?
Part III: Five Common-Sense Rules for Collectors