Author Description

This report analyzes two reasons for export prices to be different across markets -- namely, quality differentiation and variable markups -- and attempts to parse their relative importance and some of their underlying drivers. The authors 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, the authors trace the process of growth and internationalization of Chinese art from 2000 to 2013. They 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. They 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. Figures. This is a print on demand report.