PRICE, ANCHORING, & SUBSTITUTION IN THE MARKET FOR FINE ART AUCTIONS

Abstract

Pablo Picasso and Marc Chagall are two Contemporary painters often featured together at auction. Can the past price of a Picasso painting drive up the current price of a Chagall piece? We examine the existence and behavior of “anchoring” cross-effects between prices of related art pieces sold at auction. Our research generalizes the anchoring model of Beggs & Graddy (2009), which only examines anchoring across resales of the same item. We draw upon insights from conversations with art specialists and experts at Sotheby’s, and construct a new dataset of recent auction sales for assorted art (2006-2015). We introduce two ways to quantify artistic similarity, which has not been done before in the art economics literature. We find significant evidence of anchoring cross-effects for both old and new data, and show the robustness of our model through three experiments. Our findings are of interest to art researchers, auction house specialists, and those who wish to understand where price signals travel in the art auction world.