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Art Auctions

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  • Graddy, Kathryn

Abstract

This paper contains a new review of the research of the last decade that has been designed to shed light on how the art auction system works, what it indicates about price formation, and how well it performs. We begin with a short description of the mechanics of the auction system and then organize the remainder of our discussion around two major topics. The first topic concerns how researchers have used auction prices. We begin by discussing the returns to holding art and whether certain classes of art make a better investment. We then discuss studies that have used auction prices to determine the importance of individual works of art and individual artists. We conclude this topic by discussing whether different auction houses achieve systematically different prices. The second topic focuses on studies that examine the influence of the auction mechanism on prices. We begin with a discussion of the Christie's and Sotheby's price fixing case and the role of the competitive behavior of auction houses in the determination of prices. We move on to discuss the role of experts and price estimates in auctions. We then look at whether items that fail at auction subsequently return less than items that have not failed and furthermore discuss sale rates and reserve prices. We conclude this topic by reviewing the extensive literature that has documented and tried to explain why the prices of identical objects are more likely to decline than to increase when multiple units are sold. Subsequent empirical research has tended to document declining prices even when the objects are imperfect substitutes.

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This chapter was published in:

  • V.A. Ginsburgh & D. Throsby (ed.), 2006. "Handbook of the Economics of Art and Culture," Handbook of the Economics of Art and Culture, Elsevier, edition 1, volume 1, number 1, December.
    This item is provided by Elsevier in its series Handbook of the Economics of Art and Culture with number 1-26.

    Handle: RePEc:eee:artchp:1-26

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    Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

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    Other versions of this item:

    • Orley Ashenfelter & Kathryn Graddy, 2010. "Art Auctions," Working Papers 1212, Princeton University, Department of Economics, Center for Economic Policy Studies..
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    References

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    1. Jianping Mei & Michael Moses, 2005. "Vested Interest and Biased Price Estimates: Evidence from an Auction Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2409-2435, October.
    2. Beggs, A. & Graddy, K., 1996. "Declining Values and the Afternoon Effect: Evidence from Art Auctions," Economics Series Working Papers 99184, University of Oxford, Department of Economics.
    3. Mortensen, Dale T, 1970. "Job Search, the Duration of Unemployment, and the Phillips Curve," American Economic Review, American Economic Association, vol. 60(5), pages 847-62, December.
    4. Ashenfelter, O. & Genesove, D., 1992. "Testing for Price Anomalies in real Estate Auctions," Papers 128, Princeton, Department of Economics - Financial Research Center.
    5. Alan Beggs & Kathryn Graddy, 2006. "Failure to Meet the Reserve Price: The Impact on Returns to Art," Economics Series Working Papers 272, University of Oxford, Department of Economics.
    6. Graham, Daniel A & Marshall, Robert C, 1987. "Collusive Bidder Behavior at Single-Object Second-Price and English Auctions," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1217-39, December.
    7. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
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