Working Paper: CEPR ID: DP5811
Authors: Alan Beggs; Kathryn Graddy
Abstract: This paper presents an empirical study of paintings that have failed to meet their reserve price at auction. In the art trade it is often claimed that when an advertised item goes unsold at auction, its future value will be affected. We have constructed a new dataset specifically for the purpose of testing this proposition. To preview our results, we find that paintings that come to auction and failed return significantly less when they are eventually sold than those paintings that have not been advertised at auction between sales. These lower returns may occur because of common value effects, idiosyncratic downward trends in tastes, or changes in the seller's reserve price.
Keywords: art; auctions; bought-in; burning; reserve prices
JEL Codes: D44; L82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Failing to meet the reserve price (D44) | Lower returns when sold (G19) |
| Failing to meet the reserve price (D44) | Annualized loss of about 43% (G33) |
| Failing to meet the reserve price (D44) | Significantly less return when sold than those not advertised at auction (D44) |