Market Evolution of Art Dealers Dakshina G. De Silva Marina Gertsberg Rachel A. J. Pownall Lancaster University∗ Maastricht Universityy Maastricht Universityz October 31, 2017 Abstract Using a unique historical data set, we show the value of expertise and reputation during the evolution of the art market. First, we illustrate how market dynamics encourage entry of dealers with heterogeneous characteristics. Second, our results provide evidence that relatively larger dealers pay about 21% more for an artwork of the same quality than smaller dealers as a result of their accumulated experience and reputation. Third, our results indicate that larger dealers are more likely to survive in the market. Our evidence outlines the importance of accumulation of market power in an emerging market characterized by uncertainty and heterogeneity. Keywords: Auctions, Art Dealers, Market Evolution, Reputation, Experts JEL Codes: L11, D44, Z11, D47 ∗Dakshina G. De Silva, Lancaster University, Lancaster LA1 4YX, The UK; Email:
[email protected] yMarina Gertsberg, Maastricht University, P.O. Box 616, 6200 MD Maastricht, The Netherlands; Email: m.
[email protected] zRachel A. J. Pownall, Maastricht University, P.O. Box 616, 6200 MD Maastricht, The Netherlands; Email: r.
[email protected] 1 Introduction In this study, we use a rare London-based fine art auction data set with buyer and seller identities, which provides us with a unique opportunity to examine a market evolution, where value is created through the accumulation of market share resulting in a better reputation and more expertise. Tracking the evolution of the market, we observe dealers' entry, bidding, and survival patterns from 1800 to 1913.