Working Paper: NBER ID: w16743
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 to measure normal sale rates. We also find evidence 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; sale rates; price movements
JEL Codes: D44; L1; L82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected positive price shock (E31) | sale rate (R31) |
| sale rate (R31) | strength of the art market (Z11) |
| reserve price (D44) | probability of sale (C69) |
| unexpected price movements (F31) | sale rates (R31) |