Auctions and the Price of Art
AbstractThis paper contains a review of the burgeoning research that has been designed to shed light on how the art auction system actually works and what it indicates about price formation. First, we find that in recent years returns on art assets appear to be little different from returns on other assets. In addition, some researchers have found that because of the weak correlation between art asset returns with other returns, there may be a case for the inclusion of art assets in a diversified portfolio. Second, we find evidence of several anomalies in art market pricing. The evidence clearly suggests that, contrary to the view of the art trade, masterpieces underperform the market. In addition, there is considerable evidence that there are fairly long periods in which art prices may diverge across geographic areas and even auction houses. Third, we review the public record of the criminal trial of Sotheby`s former Chairman, who was accused of price fixing, to show how the collusion with Christie`s, the other great public auction house, was actually engineered. Contrary to the way the proceeds from the settlement of the civil suit in this case were distributed, we show that buyers were almost certainly not injured by the collusion, but that sellers were. In addition, based on the public record of settlement, it appears that the plaintiffs in the civil suit were very handsomely repaid for their injury. Finally, we review the extensive research on the effects of the auction institution on price formation. There is now considerable theoretical research on strategic behavior in auctions, much of it in response to empirical findings, and we review three key findings. First, the evidence suggests that art experts provide extremely accurate predictions of market prices, but that these predictions do not optimally process the publicly available information. Second, high reserve prices, and the resulting high unsold (buy-in) rates are best explained as optimal search in the face of stochastic demand. Third, extensive research has documented that the prices of identical objects are more likely to decline than to increase when multiple units are sold, and this has led to considerable theoretical research. Subsequent empirical research has tended to document declining demand prices even when the objects are imperfect substitutes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 131.
Date of creation: 01 Nov 2002
Date of revision:
auctions; art; price anomalies; asset returns; price fixing;
Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:feb:framed:0016 is not listed on IDEAS
- William LANDES, 2000. "Winning the Art Lottery : The Economic Returns to the Ganz Collection," Discussion Papers (REL - Recherches Economiques de Louvain) 2000021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Chanel, O. & Gerard-Varet, L.A., 1996. "Auction Theory and Practice Evidence from the Market for Jewellery," G.R.E.Q.A.M. 96b05, Universite Aix-Marseille III.
- Campbell, John, 1987.
"Stock Returns and the Term Structure,"
3207699, Harvard University Department of Economics.
- Ashenfelter, Orley & Genesove, David, 1992.
"Testing for Price Anomalies in Real-Estate Auctions,"
American Economic Review,
American Economic Association, vol. 82(2), pages 501-05, May.
- Orley Ashenfelter & David Genesove, 1992. "Testing for Price Anomalies in Real Estate Auctions," NBER Working Papers 4036, National Bureau of Economic Research, Inc.
- Ashenfelter, O. & Genesove, D., 1992. "Testing for Price Anomalies in real Estate Auctions," Papers 128, Princeton, Department of Economics - Financial Research Center.
- Ashenfelter, O. & Genesove, D., 1992. "Testing for Price Anomalies in Real Estate Auctions," Working papers 92-2, Massachusetts Institute of Technology (MIT), Department of Economics.
- Black, Jane & De Meza, David, 1992. "Systematic Price Differences between Successive Auctions Are No Anomaly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 607-28, Winter.
- Vincent Daniel R., 1995. "Bidding Off the Wall: Why Reserve Prices May Be Kept Secret," Journal of Economic Theory, Elsevier, vol. 65(2), pages 575-584, April.
- Genesove, David, 1995. "Search at Wholesale Auto Auctions," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 23-49, February.
- Ross, Myron H & Zondervan, Scott, 1989. "Capital Gains and the Rate of Return on a Stradivarius," Economic Inquiry, Western Economic Association International, vol. 27(3), pages 529-40, July.
- Werner Pommerehne & Lars Feld, 1997. "The Impact of Museum Purchase on the Auction Prices of Paintings," Journal of Cultural Economics, Springer, vol. 21(3), pages 249-271, September.
- Stein, John Picard, 1977. "The Monetary Appreciation of Paintings," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 1021-35, October.
- Pesando, James E, 1993. "Art as an Investment: The Market for Modern Prints," American Economic Review, American Economic Association, vol. 83(5), pages 1075-89, December.
- Goetzmann, William N, 1993. "Accounting for Taste: Art and the Financial Markets over Three Centuries," American Economic Review, American Economic Association, vol. 83(5), pages 1370-76, December.
- Frey, Bruno S. & Eichenberger, Reiner, 1995. "On the rate of return in the art market: Survey and evaluation," European Economic Review, Elsevier, vol. 39(3-4), pages 528-537, April.
- Bernhardt, Dan & Scoones, David, 1994.
"A Note on Sequential Auctions,"
American Economic Review,
American Economic Association, vol. 84(3), pages 653-57, June.
- Orley Ashenfelter & Kathryn Graddy, 2010.
1212, Princeton University, Department of Economics, Center for Economic Policy Studies..
- Nathalie Buelens & Victor Ginsburgh, 1993.
"Revisiting Baumol's Art as floating crap game,"
ULB Institutional Repository
2013/1727, ULB -- Universite Libre de Bruxelles.
- Victor Ginsburgh & Philippe Jeanfils, 1995.
"Long-term comovements in international markets for paintings,"
ULB Institutional Repository
2013/1717, ULB -- Universite Libre de Bruxelles.
- Ginsburgh, Victor & Jeanfils, Philippe, 1995. "Long-term comovements in international markets for paintings," European Economic Review, Elsevier, vol. 39(3-4), pages 538-548, April.
- Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
- Alan Beggs & Kathryn Graddy, 1997.
"Declining Values and the Afternoon Effect: Evidence from Art Auctions,"
RAND Journal of Economics,
The RAND Corporation, vol. 28(3), pages 544-565, Autumn.
- 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.
- Victor A. Ginsburgh, 1998.
"Absentee Bidders and the Declining Price Anomaly in Wine Auctions,"
Journal of Political Economy,
University of Chicago Press, vol. 106(6), pages 1302-1331, December.
- Victor Ginsburgh, 1998. "Absentee bidders and the declining price anomaly in wine auctions," ULB Institutional Repository 2013/1701, ULB -- Universite Libre de Bruxelles.
- Luc BAUWENS & Victor GINSBURGH, 2000. "Art experts and auctions Are pre-sale estimates unbiased and fully informative?," Discussion Papers (REL - Recherches Economiques de Louvain) 2000022, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Milgrom, Paul R & Weber, Robert J, 1982.
"A Theory of Auctions and Competitive Bidding,"
Econometric Society, vol. 50(5), pages 1089-1122, September.
- Lusht, Kenneth M, 1994. "Order and Price in a Sequential Auction," The Journal of Real Estate Finance and Economics, Springer, vol. 8(3), pages 259-66, May.
- Horstmann, Ignatius J & LaCasse, Chantale, 1997.
"Secret Reserve Prices in a Bidding Model with a Resale Option,"
American Economic Review,
American Economic Association, vol. 87(4), pages 663-84, September.
- Horstmann, I.J. & LaCasse, C., 1995. "Secret Reserve Prices in a Bidding Model with a Re-Sale Option," Working Papers 9507e, University of Ottawa, Department of Economics.
- Anderson, Robert C, 1974. "Paintings as an Investment," Economic Inquiry, Western Economic Association International, vol. 12(1), pages 13-26, March.
- Engelbrecht-Wiggans, Richard, 1994. "Sequential auctions of stochastically equivalent objects," Economics Letters, Elsevier, vol. 44(1-2), pages 87-90.
- Olivier Chanel & Louis-André Gérard-Varet & Victor Ginsburgh, 1996. "The relevance of hedonic price indices," Journal of Cultural Economics, Springer, vol. 20(1), pages 1-24, March.
- repec:att:wimass:9215 is not listed on IDEAS
- Vanderporten, Bruce, 1992. "Timing of Bids at Pooled Real Estate Auctions," The Journal of Real Estate Finance and Economics, Springer, vol. 5(3), pages 255-67, September.
- McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June.
- McAfee, R Preston & Quan, Daniel C & Vincent, Daniel R, 2002. "How to Set Minimum Acceptable Bids, with an Application to Real Estate Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 391-416, December.
- Victor Ginsburgh & Pierre-Michel Menger, 1996. "Economics of the arts: selected essays," ULB Institutional Repository 2013/1655, ULB -- Universite Libre de Bruxelles.
- Gale Ian L. & Hausch Donald B., 1994. "Bottom-Fishing and Declining Prices in Sequential Auctions," Games and Economic Behavior, Elsevier, vol. 7(3), pages 318-331, November.
- Gandal, Neil, 1997. "Sequential Auctions of Interdependent Objects: Israeli Cable Television Licenses," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 227-44, September.
- Baumol, William J, 1986. "Unnatural Value: Or Art Investment as Floating Crap Game," American Economic Review, American Economic Association, vol. 76(2), pages 10-14, May.
- Balvers, Ronald J, 1990. "Variability and the Duration of Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 747-51, August.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).
If references are entirely missing, you can add them using this form.