Working Paper: CEPR ID: DP13665
Authors: Kathryn Graddy; Orley C. Ashenfelter
Abstract: Works of art and culture are sold by many means. These include transactions between dealers and their customers, auctions with open outcry, internet auctions, and even, occasionally, sealed bid auctions. However, the standard procedure for establishing art valuations for the most expensive works is still most commonly the English auction, where prices ascend in open bidding. This paper describes how art auctions really work, along with the state of competition between auction houses. For expensive art, competition is dominated by the duopoly of Christie's and Sotheby’s. The paper proceeds to describe various interesting features of art auctions, including the declining price anomaly, whether or not auctioneers provide accurate information, and anchoring effects in art auctions. The public auction system provides a valuable method for setting and determining values; it is probable that the inability of auctioneers to capture a significant part of the benefits of the information they produce leads to less use of the auction system than is optimal for society.
Keywords: art auctions; auction houses; English auction; reserve prices; declining price anomaly; anchoring effects
JEL Codes: D44; Z11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| auction system (D44) | setting and determining values for artworks (Z11) |
| auctioneer's failure to capture benefits of information (D44) | underutilization of the auction system (D44) |
| reserve price (D44) | final sale price (D44) |
| bidders' risk aversion (D44) | declining price anomaly (D43) |
| auctioneer's strategic presentation of items (D44) | declining price anomaly (D43) |
| truthful estimates of art values (Z11) | bidding behavior (D44) |
| bidding behavior (D44) | final sale prices (D44) |
| previous sale prices (P22) | current bidding (D44) |
| current bidding (D44) | final sale prices (D44) |