| 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. |