In this paper, we examine the price dynamics of on-line art auctions of
modern Indian art using functional data analysis. The purpose here is not just
to understand what determines the final prices of art objects, but also the
price movement during the entire auction. We identify several factors, such as
artist characteristics (established or emerging artist; prior sales history),
art characteristics (size; painting medium--canvas or paper), competition
characteristics (current number of bidders; current number of bids) and auction
design characteristics (opening bid; position of the lot in the auction), that
explain the dynamics of price movement in an on-line art auction. We find that
the effects on price vary over the duration of the auction, with some of these
effects being stronger at the beginning of the auction (such as the opening bid
and historical prices realized). In some cases, the rate of change in prices
(velocity) increases at the end of the auction (for canvas paintings and
paintings by established artists). Our analysis suggests that the opening bid
is positively related to on-line auction price levels of art at the beginning
of the auction, but its effect declines toward the end of the auction. The
order in which the lots appear in an art auction is negatively related to the
current price level, with this relationship decreasing toward the end of the
auction. This implies that lots that appear earlier have higher current prices
during the early part of the auction, but that effect diminishes by the end of
the auction. Established artists show a positive relationship with the price
level at the beginning of the auction. Reputation or popularity of the artists
and their investment potential as assessed by previous history of sales are
positively related to the price levels at the beginning of the auction. The
medium (canvas or paper) of the painting does not show any relationship with
art auction price levels, but the size of the painting is negatively related to
the current price during the early part of the auction. Important implications
for auction design are drawn from the analysis.Comment: Published at http://dx.doi.org/10.1214/088342306000000196 in the
Statistical Science (http://www.imstat.org/sts/) by the Institute of
Mathematical Statistics (http://www.imstat.org