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Auction House Guarantees for Works of Art

Author

Listed:
  • Kathryn Graddy

    (Department of Economics, International Business School, Brandeis University)

  • Jonathan Hamilton

    (Department of Economics, Warrington College of Business, University of Florida)

Abstract

Auction houses use both in-house and third-party guarantees for sellers who are concerned about the risk that not enough bidders will enter the auction for their works. Auction houses are compensated for guarantees by buyers’ commissions and successful sales after attracting important works of art. Sellers compensate third-party guarantors by splitting the excess of the final sale price over the guarantee. The guarantor can bid in the auction, and at Christie's, the third-party guarantor still receives a share of the difference between the winning price and the guarantee price, even if he wins the auction, which means the guarantor has a “toehold†. We explore the effect of guarantees (both in-house and third-party) on prices in art auctions, using a large database of auctions and a smaller database of repeat sales.

Suggested Citation

  • Kathryn Graddy & Jonathan Hamilton, 2014. "Auction House Guarantees for Works of Art," ACEI Working Paper Series AWP-02-2014, Association for Cultural Economics International, revised May 2014.
    • Handle: RePEc:cue:wpaper:awp-02-2014
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    File URL: http://www.culturaleconomics.org/awp/AWP-02-2014.pdf
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    References listed on IDEAS

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    Cited by:

    1. Spaenjers, Christophe & Goetzmann, William N. & Mamonova, Elena, 2015. "The economics of aesthetics and record prices for art since 1701," Explorations in Economic History, Elsevier, vol. 57(C), pages 79-94.
    2. Francesco Angelini & Massimiliano Castellani, 2018. "Private pricing in the art market," Economics Bulletin, AccessEcon, vol. 38(4), pages 2371-2378.
    3. Penasse, J.N.G. & Renneboog, L.D.R., 2014. "Bubbles and Trading Frenzies : Evidence from the Art Market," Other publications TiSEM bf0d8984-df7f-4f02-afc7-3, Tilburg University, School of Economics and Management.
    4. Federico Etro & Elena Stepanova, 2015. "The Market for Paintings in Paris between Rococo and Romanticism," Kyklos, Wiley Blackwell, vol. 68(1), pages 28-50, February.

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    More about this item

    Keywords

    Auctions; economics of art; price guarantees; toeholds in auctions;
    All these keywords.

    JEL classification:

    • Z11 - Other Special Topics - - Cultural Economics - - - Economics of the Arts and Literature
    • Z18 - Other Special Topics - - Cultural Economics - - - Public Policy
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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