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Title: A finite mixture model to capture unobserved heterogeneity in art prices: Evidences from surrealism Authors:  Juan Prieto-Rodriguez - Universidad de Oviedo (Spain) [presenting]
Abstract: The purpose is to analyse whether there is or not a single mechanism in price formation at the high end of the modern art market defined by auction houses at the most important art markets in the world. A serious problem in estimating functions in cultural markets is the presence of unobserved heterogeneity. For instance, the shape of the demand or value function in the modern art market relies on individual characteristics of artworks, which are may not be all directly observed. Moreover, just one value function may not be enough to capture differences in price formation if it differs across pieces of art. In order to reduce unobserved heterogeneity, we have used a sample on paintings sold at auctions between 1990 and 2007 related to different schools and movements of Surrealism. We have used a finite mixture approach to emulate the data generating process underlying the price formation. Such models have allowed us first to identify art market segments defined by a similar but unobserved price structure and, then, to investigate differences in prices determinants. Additionally, we have found some separating variables or determinants upon which art pieces are classified into a specific market segment. Thanks to this procedure we can reject the hypothesis of a unique price structure in auction markets for Surrealism. As expected, moreover, segmentation depends on local markets and on the auction houses involved.