Working Paper: CEPR ID: DP8219
Authors: Orley C. Ashenfelter; Kathryn Graddy
Abstract: The failure of many paintings to sell in art auctions indicates the presence of reserve prices set by sellers. This paper examines the relationship between sale rates and price surprises over time in art auctions. Using data on contemporary and impressionist art, we show that while sale rates appear to have little relationship to current prices, there exists a strong positive relationship of sale rates to unexpected aggregate price changes, which is reminiscent of a Phillips curve. As a result, sale rates provide a useful quantity indicator of the strength of the art market. The data also indicate that sale rates revert to normal very quickly following a price surprise. We estimate an empirical model that suggests that the reserve price is set on average at about 70% of the auctioneer?s low estimate as published in the auction catalog.
Keywords: art auctions; price shocks; sale rates
JEL Codes: Z1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected price shocks (E31) | sale rates (R31) |
| reserve price (D44) | likelihood of an item being sold (D44) |
| prior price shocks (E30) | subsequent sale rates (R31) |