Abstract
This article presents an empirical study of paintings that have failed to meet their reserve price at auction. In the art trade, it is often claimed that when an advertised item goes unsold at auction, it will sell for less in the future. We have constructed a new dataset specifically for the purpose of testing this proposition. To preview our results, we find that paintings which come to auction and failed return significantly less when they are eventually sold than those paintings that have not been advertised at auction between sales. These lower returns may occur because of common value effects, idiosyncratic downward trends in tastes, or changes in the seller’s reserve price.
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Notes
The plaintiff alleged that Christie’s did not use sufficient care in marketing and auctioning eight impressionist paintings consigned to them in 1981. Seven out of the eight paintings failed to meet their reserve price. The suit was eventually settled out of court.
Please see Mei and Moses (2002) for a discussion of mean reversion in prices and Beggs and Graddy (forthcoming) for a discussion of reference dependence.
Goetzmann and Spiegel (1995) argue that if a painting is put back on the market shortly after its initial sale it is likely to decline in price even in a private value models since the bidder who valued it most has dropped out and few new bidders are likely to have appeared. That is the number of bidders is trending downwards. This is unlikely to be important in our data as holding times are not short.
Note that we identified many painting that had identical titles, artists and even dimensions, but were, in actuality, different paintings.
Paintings that appear before 1973 do not have price estimates.
This can include observations in which the painting appears unsold after two sales, as unsold before the two sales or in which the painting never appears as unsold in the dataset during the time period.
The main time period used in this study to select failed paintings, 1980–1990, was a period of mostly increasing prices. During the late 1980s, the art market was booming, and not until 1989 did a turnaround occur. Hence, this period may have had an unusually low level of failed items for paintings that had previously sold at auction. The failures are not grouped around a particular date, but are approximately evenly spread throughout the 1980–1990 time period.
This methodology was developed by Baily et al. (1963) and used by Case et al. (1987) and Hosios and Pesando (1991) for the real estate market, and subsequently used by Goetzmann (1993); Pesando (1993) and Mei and Moses (2002) for the art market. In these papers, ε i,t is assumed to be uncorrelated over time and across paintings.
Note that we also estimated a hedonic model. As expected, the coefficients on fail in the hedonic regressions above are significantly more negative than the coefficient on fail in the previous repeat sale regressions. This finding is consistent with a biased estimate resulting from unobservable (to the econometrician) characteristics.
Ashenfelter (2000) defines expert opinion as efficient if it incorporates all of the publicly available information that is useful in making predictions.
This is true whether 1 year, 1 ½ years, or 2 ½ years is used as the time period.
See column 2 of Table 7: 1−exp(−0.463) = 0.37.
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Acknowledgements
The authors would like to thank Thomas Cochrane, Robyn Evans and Ben McClean for excellent research assistance. We thank Orley Ashenfelter and Andrew Richardson for the use of their Impressionist and Modern Art dataset. We are also very grateful to Jiangping Mei and Mike Moses for the use of their repeat sales dataset, and we thank Victor Ginsburgh for comments. We are especially grateful for the input of two anonymous referees. We would also like to thank seminar participants at the University of Florida, Oxford, the Tinbergen Institute, Tilburg University, Claremont McKenna College, and Brandeis University for very useful comments.
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Beggs, A., Graddy, K. Failure to meet the reserve price: the impact on returns to art. J Cult Econ 32, 301–320 (2008). https://doi.org/10.1007/s10824-008-9077-8
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DOI: https://doi.org/10.1007/s10824-008-9077-8