Going Global: Markups and Product Quality in the Chinese Art Market

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 underlying drivers. To overcome identification issue, we consider a particular industry: Chinese fine art, given its simplicity of the supply-side. Through this lens, we trace the internationalization process of Chinese art since the year 2000. We find strong support for quality sorting into international, as well as substantial markup differences across destinations. Using a structural model of endogenous quality choice, we argue that much of the international quality premium is driven by distribution costs rather than destination preferences for quality.

Keywords: F14, G15

JEL Classification: international prices, quality di