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Market value of rarity: A theory of fair value and evidence from rare baseball cards

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  • Ghazi, Soroush
  • Schneider, Mark

Abstract

We investigate the market value of rarity theoretically and empirically. Prior studies find that the market value of rarity follows a power law, but this finding lacks a theoretical foundation. We provide a micro-foundation for this finding, demonstrating that the observed power law emerges in a competitive market where agents have rank-dependent utility preferences. The model leads to two new theoretical insights: (i) the rank of an item within a set of close substitutes and the quantity of that item known to exist are both natural measures of rarity, but rank is predicted to perform better; (ii) there is a systematic relationship between the estimated slope and intercept from a regression of log price on log rank. When we test the model on data from over 4000 auction records of rare baseball cards, we find that a regression with only log rank and grading company explains 60% of the variation in log price.

Suggested Citation

  • Ghazi, Soroush & Schneider, Mark, 2024. "Market value of rarity: A theory of fair value and evidence from rare baseball cards," Journal of Economic Behavior & Organization, Elsevier, vol. 219(C), pages 318-339.
    • Handle: RePEc:eee:jeborg:v:219:y:2024:i:c:p:318-339
    DOI: 10.1016/j.jebo.2024.01.016
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    Keywords

    Rarity; Rank dependent utility; Baseball cards; Power laws; Zipf's law;
    All these keywords.

    JEL classification:

    • D00 - Microeconomics - - General - - - General

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