DP5811 Failure to Meet the Reserve Price: The Impact on Returns to Art

Author(s): Alan Beggs, Kathryn Graddy
Publication Date: September 2006
Keyword(s): art, auctions, bought-in, burning, reserve prices
JEL(s): D44, L82
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5811

This paper 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, its future value will be affected. We have constructed a new dataset specifically for the purpose of testing this proposition. To preview our results, we find that paintings that 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.