Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/93619 
Year of Publication: 
2013
Series/Report no.: 
Staff Report No. 614
Publisher: 
Federal Reserve Bank of New York, New York, NY
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-á-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 artworks. Through this lens, we trace the process of growth and internationalization of Chinese art since the year 2000. 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 per unit distribution costs (whether physical or informational) rather than destination-specific preferences for quality.
Subjects: 
international prices
quality differentiation
art auction
JEL: 
F14
G15
Document Type: 
Working Paper

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