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Going global: markups and product quality in the Chinese art market

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Listed:
  • Jennie Bai
  • Jia Guo
  • Benjamin R. Mandel

Abstract

We analyze two reasons for export prices to be different across markets ? namely, quality differentiation and variable markups ? and attempt to parse their relative importance and some of their underlying drivers. To overcome the substantial measurement issues in this task, we consider a particular industry as a special case: Chinese fine art. The simplicity of the supply-side of art vis--vis marginal cost and the wealth of data on its quality characteristics make it possible to separately identify the markup and quality components of international relative prices for Chinese artwork. Through this lens, we trace the process of growth and internationalization of Chinese art since the year 2000 and uncover a rich set of facts. We find strong support for quality sorting into international markets at both the level of artist and artwork, as well as substantial markup differences across destinations. Using a structural model of endogenous quality choice by Feenstra and Romalis (2012), we argue that much of the international quality premium is driven by specific distribution costs (whether physical or informational), rather than destination-specific preferences for quality.

Suggested Citation

  • Jennie Bai & Jia Guo & Benjamin R. Mandel, 2013. "Going global: markups and product quality in the Chinese art market," Staff Reports 614, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:614
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Bastos, Paulo & Silva, Joana, 2010. "The quality of a firm's exports: Where you export to matters," Journal of International Economics, Elsevier, vol. 82(2), pages 99-111, November.
    3. Reto Cueni & Bruno S. Frey, 2014. "Forecasts and Reactivity," CREMA Working Paper Series 2014-10, Center for Research in Economics, Management and the Arts (CREMA).

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    More about this item

    Keywords

    international prices; quality differentiation; art auction;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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