SELLING ONLINE VERSUS LIVE

EIICHIRO KAZUMORI AND JOHN MCMILLAN Abstract. A seller choosing between auctioning online and live faces a tradeo: lower transaction costs online against more rents left with the bidders. We model this tradeo, and apply the theory to auctions of art. The crucial parameter for whether the seller does better online than live is not the expected price but the valuation uncertainty.

1. Introduction Online auction sales reached $13 billion in the United States in 2002, still growing at 33 percent per year. Cut owers, seafood, classic cars, jewelry, coins, antiques, and art are now auctioned online as well as in traditional live sales. In what follows we model the sellers choice of sale venue, online versus live, and apply the theory to auctions of art, where prices and valuation uncertainties are extreme. The internet has made markets more ecient by making it easier for buyers to learn what is available where for how much. The lowering of these search frictions has made pricing more competitive, as various empirical studies have found (Baye, Morgan, and Scholten, 2001, Brown and Goolsbee, 2002, Brynjolfsson and Smith, 2000, Clay, Krishnan, and Wol, 2001, Ellison and Ellison, 2001). There is one set of frictions that the internet has not reduced, however: those of verifying quality. Such frictions mean, we will argue, that online prices tend to be less competitive. Are there limits to what can be sold online? Industry wisdom says the internet is not suitable for selling high-end items, because potential buyers will resist bidding large sums for goods they have not seen. Counterexamples exist, however. The town of Bridgeville, California
Date: January 29, 2003. Key words and phrases. auctions, electronic commerce, art market. California Institute of Technology; eiichiro_kazumori2@yahoo.com. Stanford University; mcmillan_john@gsb.stanford.edu. We acknowledge support from the Center for Electronic Business and Commerce at Stanford Universitys Graduate School of Business and from a Stanford dissertation fellowship, and thank Yee Man Chan, Brian Poi, and Ha Quach for research assistance.
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EIICHIRO KAZUMORI AND JOHN MCMILLAN

was auctioned on eBay for $1.8 million. Most of the 249 bidders made their oers based solely on digital photographs and descriptions of the town on a Web site, according to a news report.1 A Ferrari sold on eBay Motors for $330,000. A 1909 baseball card sold on eBay for $1.3 million. A rst printing of the Declaration of Independence, from July 4, 1776, sold on Sothebys.com for $8.1 million. There are two main dierences between online and live auctions. First, less information is available for online bidders. In a live auction, bidders inspect the item at the preview and (in the case of art auctions) can get advice from the auction-house experts present. In an online auction, bidders get only what information is posted on a web page. The fuzziness of pictures on a computer screen means an online bidders information is limited. Second, transaction costs are higher in live auctions. Online, the sellers costs are those of running a web site. Live, the auctioneer pays the costs of mounting the pre-sale exhibition and in running the theatrical performance that makes up a live auction. The live seller must wait until a suitable auction is scheduled, bringing costs of delay. Bidders have negligible participation costs online, whereas to bid live they incur travel and other participation costs. In the auctions of tuna at Tokyos Tsukiji market, where a single sh goes for up to $15,000, buyers spend half an hour examining the tuna to assess their suitability for sashimi and sushi. This adds up to hundreds of person-hours of transaction costs in these live auctions. In online seafood auctions in Europe, by contrast, the auctioneer uses a letter-grade system to stipulate the freshness of the sh, thus economizing on the bidders time, though possibly at the cost of inferior information. When ower auctions in the Netherlands went online, prices fell ve percentarguably because the bidders found it hard to assess the owers quality from an on-screen picture.2 Any seller choosing between auctioning online and live, then, faces a tradeo. On the one hand, the costs to the seller and the bidders of participating are lower online. On the other hand, online bidders, worrying more about the winners curse, bid lower. We will model the tradeo of lower transaction costs online against more rents left with the bidders. The winning bidder does better in an online auction than in a live one in our model, despite being more uncertain about the
San Jose Mercury News, December 28 2002, p. 1A. The $13 billion gure cited earlier comes from CNET News.com, October 18, 2002. 2 On the Tsukiji sh auctions, see McMillan (2002, p. 65); on the online European sh auctions, www.pefa.com/pefaportal/en/index.htm; on the Dutch ower auctions, Koppius, Van Heck, and Wolters (2002).
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SELLING ONLINE VS. LIVE

assets value (because the competitors also bid lower). The gains can be mutual: in certain cases the seller, too, does better online (because of the saving in transaction costs). What are the limits of online auctions? The common belief among online sellers seems to be that it is the items expected price that determines whether selling online works better for the seller; high-value items should be sold live. Our theory suggests, to the contrary, that the crucial variable is not the expected price but the extent of valuation uncertainty. Valuable items can be successfully auctioned online if their variance of value is low. 2. Art Auctions Internet auctions of art are nearly as old as electronic commerce. In 1995, Donna Rose, a Beverly Hills art dealer, ran some on her site www.artbokerage.com (Turban, 1997). Now, many sites oer original artworks at xed prices or by auction. The biggest player is Sothebys, which in 2000 revamped its time-honored sale mechanism and started auctioning online via Sothebys.com. An online seller of heterogeneous goods of any kind faces questions of quality. The success of eBay, for example, is in part due to its seller-reputation mechanism, reassuring bidders by tracking previous buyers experiences (Baron, 2001, Houser and Wooders, 2000, LuckingReiley, Bryan, Prasad, and Reeves, 2000, McDonald and Slawson, 2000, Resnick and Zeckhauser, 2001). More than anything else that is sold online, art is prone to vast uncertainties about authenticity and merit. Art thus tests the scope of online sales. Nevertheless, art collectors readily adapted to bidding online. Shortly after online art sales began, Business Week noted, "what is astonishing many experts is how quickly collectors have accepted buying expensive works over the Net without seeing them," and quoted Craig Moett, president of Sothebys.com, saying, "That we would be selling works in the $20,000, $30,000, and $40,000 range is a surprise."3 Sothebys online auctions have a checkered history. Sothebys.com began operations in January 2000 as a joint venture between Sothebys and Amazon.com. This alliance was dissolved after nine months; the end came ve days after Sothebys pleaded guilty to colluding with Christies to x fees in their live auctions. Sothebys operated the online auctions alone from October 2000 to June 2002. During this time it sold goods worth over $100 million in a period when the art market in general was depressed, but lost money because of the web
3

Business Week, July 3, 2000, p. 152.

EIICHIRO KAZUMORI AND JOHN MCMILLAN

sites high set-up costs.4 Then it formed a joint venture with eBay. The joint venture replaced eBay Premiere, eBays own site for highend auctions, while Sothebys online business moved to eBays web site, allowing Sothebys to cut sta and expenditures in its online division. Live auctions at Sothebys have four steps: consignment, cataloguing, exhibition, and sale. After a prospective seller contacts Sothebys, its experts check the items authenticity and appraise its value. The owner then consigns the item to Sothebys, which puts it in an upcoming auction. Sothebys auctions have a theme, such as 20th Century Works of Art or Egyptian, Classical, and Western Asiatic Antiques, so the sale waits until there is an auction that it ts. The auction catalogue, available about one month ahead of the auction, contains a description of the item, its history, reference notes, and an upper and lower estimated selling price. The estimate is "an approximate valuation, based whenever possible on comparable auction values," according to Sothebys (Hildesley, 1984, p. 57). A few days before the auction, Sothebys mounts an exhibition of the items to be sold. The exhibition is open the public and Sothebys specialists are on hand to answer questions.5 Finally there is the auction itself, run with open ascending bidding. Any major sale is a social event for the glitterati. Space in the auction room is scarce so it is rationed (Watson, 1992, p. 11), desirable seats being assigned to clients who have spent lavishly in the past. Sothebys online auctions dier from its live auctions in several respects. First, Sothebys is the consignor in only a fraction of Sothebys.com auctions. It has formed partnerships with about 5,000 internet associates, independent dealers who oer goods for sale at Sothebys.com. The associates authenticate their own goods and make their own appraisals. Second, rather than large auction events with specic themes at discrete times, miscellaneous items are continuously on oer via the web site. (At any time the site lists around 13,000 items for sale.) Third, there is no printed catalogue and no exhibition; the descriptions are solely online. Fourth, the auction is run by eBays rules; in particular, each auction has a xed end-time (and so there is the
Sothebys incurred costs of $60 million in the rst two years of its online operation, mostly in set-up costs (Wall Street Journal, January 31, 2002, p. B4). 5 It is buyer beware. A catalogue states, Neither we nor the Consignor make any warranties or representations of the correctness of the catalogue or other description of physical condition size, quantity, rarity, importance, medium, provenance, exhibitions, literature or historical relevance of the property . . . Prospective bidders should inspect the property before bidding to determine its condition, size or whether or not it has been repaired or restored (Sothebys, 1988).
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SELLING ONLINE VS. LIVE

possibility of last-minute bidding, analyzed in eBay auctions by Bajari and Hortacsu, 2002a, and Ockenfels and Roth, 2002). Unlike eBays regular auctions but like Sothebys live auctions, however, the online art auctions come with expert appraisals. Sothebys main cost of running online auctions is in producing the web-site descriptions. This costs no more, presumably, than printing the catalogue for a live auction. The other live-auction costs are avoided. For bidders, participation is easier online. The live bidders transaction costs go beyond travel and other pecuniary costs. Sothebys London and New York salerooms have an elitist ambiance, said to be daunting to newcomers. This world has been too intimidating and raried, said Sothebys president Diana D. Brooks when Sothebys.com was starting up. We want our site to be a friendly place to the potentially millions of people whove never bought art before. In the rst few months of their online auctions, according to Sothebys, 85 percent of the bidders had never bought anything at Sothebys before.6 An online bidder sees a photograph of the item for sale, sometimes a paragraph of biography of the artist, a terse statement of the works condition, and a lower and upper estimate. Figures 1 and 2 exemplify how muchor how littleinformation the bidders are given to help them assess the artworks value. (To see more such examples, go to http://sothebys.ebay.com and click on a few of the listings.) A photograph does not usually do justice to a piece of art. Is the internet right for selling art? Sothebys move to online auctions was greeted skeptically. Christies, Sothebys rival in the global art duopoly, has deliberately stayed away from online auctions. An unconvinced art dealer remarked, What we sell is something that needs to be looked at and discussed. The chief executive of the traditional art auctioneer Butterelds, Geo Iddison, said, Buyers expect to touch the works of art in person.7 Next we develop a model that both sharpens and amends the observation that potential buyers prefer to see the art before bidding. 3. The Model and Equilibrium The decision makers: We use the common-value model: that is, there is a single item for sale with an objective value to the potential buyers, dened perhaps by its future resale value, which at the time of bidding
Quote from Economist, January 27, 2000. New-bidders number from Worth, Winter 2000/2001, www.worth.com. 7 The rst quote is from a London oriental art dealer, Giuseppe Eskenazi, in Economist, January 27, 2000. Iddison quote: San Jose Mercury News, Aug. 2, 2002.
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EIICHIRO KAZUMORI AND JOHN MCMILLAN

no one knows. The winning bidder gets an ex post payo of s p, the dierence between the common value s and the price p. The seller has zero value for the asset if unsold. A bidder i receives a scalar signal xi about the assets value s. The expected value E[sjx], where x = (x1; :::; xn), is nondecreasing in each argument. The potential buyers and the seller are risk neutral and share a common prior on s and x: The fact that art auctioneers announce a presale estimate indicates the existence of some underlying common value and implies the alternative model, independent private values, does not t (though values could, more generally, be aliated in the sense of Milgrom and Weber (1982a).) Renoir apparently believed the common-value model applies to art. "Get this into your head, no one really knows anything about it," he said. "Theres only one indicator for telling the value of paintings and thats the sale-room" (quoted by Duret-Robert, 1978). Renoirs words "no one really knows" and "the value" invoke the common-value model, as does his assertion, la Wilson (1977), that price reveals value. An online auction in our model is a standardthat is, frictionless ascending auction. A live auction has endogeneous entry of bidders; the seller and the bidders incur transaction costs. There are N potential bidders. In an online auction, with zero participation costs, all N are actual bidders. In a live auction, with positive participation costs, a subset of n of them (with n N ) are actual bidders. The decision process: Nature sets the common value s. Neither the seller nor any of the bidders learns the realization of s. Then the seller decides whether to sell the asset in a live auction or online. In an online sale: The seller reveals information about the asset on its webpage truthfully, because of its guarantee8 and the eBay feedback rating system. Bidder i obtains the signal xon from the distribution F on . i Bidders compete in an ascending auction, with a reserve price r on set by the seller. In a live sale, on the other hand: The seller pays a cost cs of running the live auction.
period, culture or origin of the lot is as set out in the Guaranteed sections of the View Item page in the description of the lot;" this guarantee is valid for three years. http://pages.sothebys.ebay.com/help/rulesandsafety/guarantee.html
8"Each seller guarantees that the authorship,

SELLING ONLINE VS. LIVE

The seller publishes a description of the asset in an auction cataloguetruthfully, for reputational and legal reasons.9 Each potential bidder decides sequentially whether to enter the auction. At the time of this choice, each learns the number of bidders who have already entered.10 Each bidder who enters pays a transaction cost (to attend the preview and inspect the asset, for example) of cb: After deciding to enter, each bidder receives a signal xof f from i the distribution F off . The bidders compete in an ascending auction with a reserve price r of f . The bidders information: Each of the signals Xiof f and Xion belongs to a mean-dispersion family with a mean-zero base random variable Z; with a distribution function F Z and continuously dierentiable density f Z and with mean and dispersion parameters (; of f ) and (; on ). This implies x x ); F of f (x) = F Z ( of f ) on A member of a mean-dispersion family is obtained by a shift in the mean and the dispersion of the base distribution. (For example, if X is normal, the base random variable is N(0, 1).) Many distributions belong to the mean-dispersion family in addition to normal, such as the lognormal, Poisson, uniform, and extremum-value distributions. The j j signals (X1 ; :::; XN ), j = on, o are independent. We assume what we will call the signal-sensitivity condition: the sensitivity of expected value to signal does not vary excessively with the level of the signal: that is, S and X j ; for j = on, o, are such that there exists m > 0; M < 1 such that for all x; @ (3.1) m E[sjX = x] M @xi (Recall that E[sjX = x] is nondecreasing in each argument.) For example, if m = M, a $1 increase in the signal increases the bidders expected value by the same amount regardless of the level of the signal. F on (x) = F Z (
9A live auction catalogue states, "We guarantee the authenticity of Authorship

of each lot contained in this catalogue . . . Authorship, locations, the identity of the creator, the period, culture, source of origin of property, as the case may be, as set forth in the Bold Type Heading of such catalogue entry" (Sothebys, 1988). 10 This is as in McAfee and McMillan (1987). Levin and Smith (1994) modeled simultaneous entry. The two formulations are similar, since both are driven by the bidders zero-prot conditions. Other models of entry include McAfee and Vincent (1992), Hausch and Li (1993), McAfee, Quan, and Vincent (2002), and Ye (2001).

EIICHIRO KAZUMORI AND JOHN MCMILLAN

(m = M holds, for example, in the mean-common-value model, in P which the value s equals the average signal, xi =n.) We also assume that the hazard rate (that is, f (x)=[1 F (x)]) is increasing for both of Xioff and Xion. Note that, if Yi;n is the ith highest realization out of n iid samples, then (from David, 1981, p. 129):
of z E(Yi;n f ) = of f + of f E(Yi;n ); on z E(Yi;n ) = on + on E(Yi;n ):

The crucial parameter in our model, the inspection parameter k, represents the extent to which bidders are better informed about the assets value in a live auction than an online one. The live auction, we assume, provides a more precise signal: off = k on for some given 0 6 k 6 1. The parameter k measures the lower dispersion in live auctions than online; k = 0 means a complete elimination of dispersion from seeing the item live, and k = 1 means no reduction of dispersion. The rst result identies the equilibrium. Lemma 1: In an online auction without a reserve price, each bidders expected prot is, Z on B = H on(xi ; N)(1 F on (xi))dxi where
on

H (xi)

@vi(x; xi ) j x=xi f(xi jxj xi; j 6= i)dxi, @x Xi vi(x) = E[sjX = x]:

The sellers expected prot is Z on S = Es N H on(xi ; N)(1 F on (xi))dxi :

In a live auction, the seller sets the reserve price equal to zero, and each bidders expected prot is zero. The sellers expected prot is of f = Es noff cb cs S Z off = Es n H of f (xi ; nof f )(1 F off (xi ))dxi cs :

The number of bidders nof f is determined endogenously by Z H of f (xi; n of f )(1 F of f (xi))dx = cb :

SELLING ONLINE VS. LIVE

The proof is in the appendix. Recall the concept of marginal revenue introduced by Bulow and Roberts (1989). In our setting, this is 1 d [vi(xi; xi )(1 F (xi ))]: f (xi) dxi (We suppress dependence on n unless needed.) By our assumption, a bidders marginal revenue is monotone increasing in own signal. Thus the seller sells the asset to the bidder with the highest signal. Since we assume independent signals, the revenue equivalence theorem holds (Bulow and Klemperer (1996)), so our results for online auctions apply not only to ascending auctions but also to other standard formats like the rst-price and second-price sealed-bid auctions. In a live auction, the participation cost determines the number of bidders. Since increasing the number of bidders decreases the expected prot each gets, the number of bidders is established (up to integer constraints) by a zero-prot condition (McAfee and McMillan, 1987). The n bidders who enter share a total expected prot of Es Ep, the expected dierence between the assets value and the winning bid. Ex ante, they each get (1=n)th of this, or (Es Ep)=n: Bidders enter until this expected prot is driven down to their participation cost cb ; thus (Es Ep)=n = cb . Therefore, Ep = Es ncb , which says that, ex ante, the price is the assets value minus the sum of the bidders participation costs. The cost of participating limits the number of bidders who enter and weakens the bidding competition. The seller indirectly bears, via a lower price, the total bidder participation costs. The tradeo between online and live auctions that, in a live auction, the number of bidders, n; can be less than the number of bidders in an online auction, N, implying less competition live than online. In the live auction, however, the information available to the bidders, X of f ; is more precise than in the online auction, X on , tending to increase the competitiveness of the bidding. The dispersion of value estimates is a crucial determinant of the choice of online versus live sales. Next we examine the eects on payos of varying the dispersion parameter. These results serve as a preliminary for the analysis in the next section and are of some theoretical interest by themselves. We rst examine online auctionsthat is, standard auctionsin terms of dispersion parameters, then live auctions that is, auctions with endogenous entry. Previous results, like Milgrom and Weber (1982b) and Athey and Levin (2001), are order-based. By contrast, this approach, by assuming the signal-sensitivity condition (3.1), provides a quantitative prediction of expected prots as a function of dispersion. M Ri(xi ) =

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EIICHIRO KAZUMORI AND JOHN MCMILLAN

Proposition 1: In an online auction, for any 1 and 2 such that 1 (m=M ) 2, each bidders expected prot is lower and the sellers expected prot is higher with 1 than with 2. An intuition for this is as follows: as falls, the bidders have a more precise estimate of the asset, so they bid more aggressively. As a result, the sellers expected prot rises and the bidders expected prot decreases. A more quantitative intuition is that, the bidders expected prot is a function of the dierence between the expected value of the highest signal and the second highest signal. This dierence is, by the formula (EY1;n EY2;n ) = (EZ1;n EZ2;n), monotone decreasing in . Proposition 2: In a live auction, for any 1 and 2 such that 1 (m=M) 2, the number of bidders is smaller and the sellers prot is higher with 1 than with 2 . The argument is straightforward: when the signal is less accurate, bidders bid more aggressively, so a bidders expected prot increases. Anticipating this, more bidders enter the auction. The added bidders do not, however, increase the sellers revenue: the zero-prot condition means the sellers payo is the value of the asset minus the bidders entry costs. Payos are roughly monotonic in variance, according to these two propositions. In the special case of m = M (which means, recall, that the sensitivity of expected value to signal does not vary with the level of the signal), they are actually monotonic. In either a live or an online auction, the seller prefers there to be a smaller valuation uncertainty. In an online auction, bidders prefer a wider valuation uncertainty, because it means weaker bidding competition. In a live auction, however, the eect of increasing valuation uncertainty on the bidders payos is ambiguous: the increased winners curse eect tends to lower the bids, but the increased variance induces extra bidders to enter, creating more competition and higher bids. The expected value of the asset aects the sellers choice between online and live auction less than the variance. To illustrate this, we go to temporarily to a special case of our model. Proposition 3: In both live and online auctions, assuming the P mean-common-value model (that is, s = xi =n), the number of bidders and the bidders expected prot are independent of . The intuition is that bidders payo is determined by the relative competition with other bidders. As a result, a shift in the items expected value, common to all bidders, does not aect the bidders payos. The seller gets all the benets of any increase in the expected value. Thus, in the case of the mean-common-value model, an increase

SELLING ONLINE VS. LIVE

11

in the expected value of the asset, with the variance and other parameters held constant, would not induce the seller to switch between online and live sale. 4. Live versus Online Our main result shows that the choice between selling live and online depends upon three paramaters: , the items expected value, , the estimate variance, and k, the extent to which this variance is lower live than online. Proposition 4: There exists k < 1 such that, for all k k ; there exist ; such that, for all and , the sellers expected prot from selling live is higher than that from selling online. The intuition is that, if the asset has high valuation risk, then the benet from information revelation is higher in a live auction; in addition, the dierence in the number of bidders between the live and the online auction is smaller. Thus the seller prefers the live auction. Another way of saying this is that the transaction cost is lower relative to the value of the asset. In a live auction, the seller has to pay not only her own transaction costs but also, indirectly, the bidders participation costs. If the expected price from a live auction does not cover these transaction costs, then the seller will not sell live. Even for a highly valuable item, an online auction can yield more for the seller than a live one. The proof of Proposition 4 reveals three eects that push for selling online: the transaction costs cb and cs being high enough, the inspection parameter k being high enough, and the estimate variance being low enough. For an asset with a given mean and variance, an online auction generates the higher return for the seller if the inspection parameter k is close enough to one, meaning the online bidders information is not too far inferior to the live bidders information. It is the nature of the item for sale that determines k. Thus the usable interpretation of Proposition 3 is that, for categories of assets with a given k parameter, online sales are justied for assets whose variance of value is not too high. High-value items can be sold online if k is close enough to one. To see the role of the inspection parameter, consider how art diers from nancial assets. For a piece of art, the auction preview reduces the valuation risk (that is, k < 1). By contrast, staring at a 10,000 yen note will not tell you anything about the risk of holding yen (that is, k = 1). As a result, there is no merit in trading nancial assets live, given the saving in transaction costs from online trading.

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EIICHIRO KAZUMORI AND JOHN MCMILLAN

The force of the parameters k and suggests that the limits of online auctions dier for dierent categories of assets. A Rembrandt painting reproduced on a computer screen loses much of its vigor: the depth and texture of the oil paint, the gradations of light and shade, the subtleties of the colors. For oil paintings, therefore, k is likely to be close to zero, so online bidders would bid cautiously to avoid the winners curse, and live auctions would tend to yield better returns for the seller. Similarly with an antique piece of clothing, such as a ninteenth century Chinese robe: it is hard to see on-screen what condition the fabric is in. With prints, photographs, coins, and stamps, arguably, something closer to full information can be conveyed to online bidders, so k is closer to one and the limits of online auctions are reached at higher expected values. The dispersion also varies across categories. A van Gogh painting being unique, it is hard to extrapolate from past auction prices of other van Goghs and so its is high. A Chagall print, by contrast, may exist in fty or more identical copies, several of which could be auctioned in a given year (Pesando, 1993). With a nonunique item like printor a photograph or a coin or a stampthe history of prices fetched by others just like it is useful in assessing its current value, so its is lower than with a unique item like a painting. The record high online price, $8.14 million for an original of the Declaration of Independence at Sothebys.com in 2000, exemplies these effects. Other copies exist, but they are rare (there are 25 known copies, but only four are in private hands), so there was little transaction history. Its estimate dispersion was therefore quite high: Sothebys.coms low and high estimates were $4 million and $6 million. 11 Being a printed document, however, its inspection parameter k was close to one, arguably, so selling online rather than live entailed little reduction in bidding competition. We now provide two numerical examples. Three bidders are interP ested in an item on oer; its value is the mean common value, xi=3. The expected value, the inspection parameter, and the participation cost are the same in each case; the only dierence is the estimate variance. Nevertheless, it turns out that in one case the seller chooses a live auction; in the other, online. Example 1 : In an online auction, the bidders signals are distributed uniformly on [2,000, 18,000], based on the information the seller provides via the internet. Instead, the seller could hold a live auction, in which information is 75 percent more accurate, in that the bidders
11 Report dated January 11, 2000 on on www.auctionwatch.com.

SELLING ONLINE VS. LIVE

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signals are distributed uniformly on [8,000, 12,000]. In the live auction, the seller has zero transaction costs but each bidder pays $100 to participate. Solution: First, we compute the seller and bidder prots from the online auction. Consider a symmetric equilibrium where a bidder drops out when the bid price reaches the assets expected value given the signals of the bidders who have already dropped out and assuming all remaining bidders have the same signal as that bidder. In expectation, bidder 1 has the signal $14,000, bidder 2 $10,000, and bidder 3 $6,000. Bidder 3 drops out at $6000. Bidder 2 drops out at [6,000+(10,0002)]/3 = $8,667. The expected price is $8,667 and each bidders expected prot is (10,000-8,667)/3 = $433. Second, we compute the prots from the live auction. In expectation, bidder 1 has the signal $11,000, bidder 2 $10,000, and bidder 3 $9,000. Suppose all three bidders enter. Bidder 3 drops out at $9,000. Then bidder 2 drops out at [9,000+(10,0002)]/3 = $9,667. The sellers expected revenue is $9,667. Each bidders expected prot is 334/3 = $111. This is higher than the entry cost of $100, so all three enter. Third, the sellers decision: online, the expected return is $8,667; live, it is 9,667-(3100) = $9,357. Thus the seller holds a live auction. Example 2 : As in example 1, except for the distributions: online, the bidders signals are distributed uniformly on [9,200, 10,800]; live, the dispersion is reduced 75 percent, to [9,800, 10,200]. Solution: First, we compute the prots from the online auction. On average, bidder 1 has the signal $10,400, bidder 2 $10,000 and bidder 3 $9,600. Bidder 2 drops out at (9,600+20,000)/3 = $9,867. Thus the expected price is $9,867 and each bidders expected prot is 133/3 = $43. Second, we compute the prots from the live auction. On average, bidder 1 has the signal $10,100, bidder 2 $10,000 and bidder 3 $9,900. Bidder 3 drops out at [9,900+(10,0002)]/3 = $9,967. The expected price is $9,967 and the expected prot of any bidder is 34/3 =$11. Given this prot, the third bidder does not enter. Will the other two enter? Now the expected price is $9,933, and each bidders expected prot is 67/2 = $34. Thus the second bidder does not enter. Only one enters, and bids some small amount " (depending on the formulation of the bargaining between the seller and the bidder). Third, the sellers decision: online, the expected return is $9,867; live, it is ". Thus the seller holds an online auction. The estimate dispersion has a major eect on the sellers decision. If it is large, the seller may hold a live auction, even given the participation costs. If it is small, it may not pay to sell live.

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EIICHIRO KAZUMORI AND JOHN MCMILLAN

Next, we look at sale rates (that is, the percentage of items that are actually sold). Proposition 5: The sale rate is higher in live auctions than in online auctions. In an online auction, since it is a standard ascending auction, the seller sets nontrivial reserve price, thus creating a positive probability of no sale. In a live auction, by contrast, since the sellers prot is equal to social welfare net of transaction costs, the seller sets a zero reserve price and always sells the asset. We could modify the model to generate the more realistic result that the sale rate is less than 100 percent in live auctions by supposing the seller has a positive value for the item unsold. The sellers value might, for example, be given as a draw from the distribution F of f minus some amount to represent, perhaps, the sellers need for liquidity. The same intuition applies. Setting a reserve price strictly above the sellers value of the item unsold pays o in an online auction but not in a live auction. With such a generalization, the sale rate would be less than 100 percent live, but still lower online. An alternative eect leading to lower sale rates online is the cost of resale. Holding another auction is costless online but costly for live auctions. Online, an unsold item can be put up for sale again shortly afterwards. Live, the cost of the preview must be incurred once more. In live auctions, more than two years pass, on average, before a painting that failed to meet its reserve nally gets sold (Ashenfelter and Graddy, 2003, Table 3). Thus the seller should be more eager to trade the asset in a live auction than online. 5. Art Auction Data We now examine data from online and live art auctions in light of our theory. We collected data from the Sothebys and eBay websites using Perl programs. The live-auction data are from Sothebys New York sales between June 1 and June 30, 2002, representing 1,890 auctioned items, with 1,213 successful sales and a total of $23,572,639 raised. The online auctions are transactions on the Sothebys site on eBay between June 26 and July 23, 2002, representing 1,300 auctioned items, with 517 successful sales and a total of $68,2845 raised. Prices are much lower online than live. The highest live-auction price in our sample is a George Graham timepiece, at $1,219,500; the highest online price is a Frank Lloyd Wright copper weed holder (that is, a vase) at $83,750. The lowest live-auction price is a Cartier watch, at $358; the lowest online price is a drawing by a British artist, Nicole

SELLING ONLINE VS. LIVE

15

Hornby, at $11.50. The mean selling price in the live auctions is just under $19,000 and in the online auctions just under $1,500. Histograms of selling prices are given in Charts 1 and 2. Notice how skewed the distributions are: in both online and live auctions the majority of items are quite aordable. This skewedness is typical. Among all artworks auctioned in the United States in 2001, 31 percent sold for less than $1,000, 45 percent for between $1,000 and $10,000, and only 24 percent for more than $10,000. 12 The types of items auctioned are compared in Table 1. For the live auctions, this categorization is based on the auction titles. For the online auctions, we use eBays categorization. A higher percentage of successful sales in live auctions than online is predicted by our theory. The data are in accord with this. Overall, the sale rate is 64 percent in live auctions and 40 percent in online markets. Table 2 shows the breakdown of sale rates by category. These sale rates are roughly consistent with data from elsewhere. For example, in eBays online art auctions in 2000 (the Great Collections auctions, eBays predecessor to its Sothebys joint venture), the sale rate was 48 percent (Tully, 2000). At Christies London live auctions in 1995 and 1996, the sale rate was in the 70 to 80 percent range for paintings of various kinds, 61 percent for photographs, 88 percent for clocks, and 86 percent for jewelry (Ashenfelter and Graddy, 2003). In auctions run under eBays rules, with a xed end-time, bidders usually submit bids very close to the end of the auction (Roth and Ockenfels, 2002). In our online-auction data, the mean timing of a bid is 78 percent through the period of auction; the median is at the 96percent point, and the 75th percentile is at the 99.7-percent point. (See Chart 3.) In other words, half of the bids, typically, are placed during the last 4 percent of the time of the auction, and 25 percent in the last 0.3 percent (or roughly the last twenty minutes) of the auction period. Late bidding, therefore, is prevalent not only in the lower-value eBay auctions but also in the art and antiques auctions on Sothebys.com.13 The main result of our theory is that the sellers optimizing decision to auction online rather than live reects the dispersion of bidder value estimates as well as, though to a lesser extent, their mean. We run a simple regression to test this proposition. We use the auctioneers presale announcement of high and low price estimates to get measures
12 According to artprice.com, http://web.artprice.com/EN/AMI/AMI.aspx?id=NTQ3MDEzOTA3MTY5O 13 In the early days of Sothebys.com, before the eBay joint venture, the auction

rules allowed a exible end-time. If a bid arrived within the last ve minutes, the auction was automatically extended for ten minutes; the process repeated until there were no more bids. (This was called "popcorn bidding.")

16

EIICHIRO KAZUMORI AND JOHN MCMILLAN

of the mean and dispersion. We take the mean of these two numbers to be the mean of the estimate distribution, and the dierence between them to measure the dispersion.14 The highest mean estimate in our live auction data is a Pierre Frederich Ingold timepiece, at $375,000 (it was sold); the highest online is a Marilyn Monroe wedding gown, at $60,000 (unsold). The lowest mean estimate in our live auctions is a 1995 Cartier watch, at $600 (sold); the lowest online is a Lee Tanner photograph of John Coltrane, at $15 (unsold). The highest estimate dispersion in the live auctions is the same Ingold timepiece, at $250,000; the highest online also is the same item, the Marilyn Monroe wedding gown, at $20,000. The lowest estimate dispersion in the live auctions is a Fouga wristwatch, at $100 (sold); the lowest online is the same Tanner photograph, at $10. These examples suggest that the pre-auction estimate dispersion does indeed reect the degree of valuation uncertainty. A watch or photo is not unique, so the history of prices of identical or similar items can be used to assess its value. Moreover, potential buyers can reasonably well judge its value from a written description plus a webpage reproduction. The value of a deceased movie stars wedding dress, by contrast is harder to assess. It is unique, so its future resale value is highly uncertain. Moreover, it may be hard to judge its quality from a web-page photograph: is it still in a good condition? Seeing it live may give a bidder signicantly more precise information. These cases further suggest, as we would expect, that items with a higher value show a higher dispersion of value estimates. This is the case in our data. The correlation between the mean of the high and low estimates and their dierence is 0.9. A probit regression of the choice of online or live auction regressed on mean and dispersion of estimates is reported in Table 3. Despite the strong positive correlation between the two independent variables, each is signicantly dierent from zero. Both the mean and the dispersion of estimates matter. Either a high expected value or a high variance of value leads to a live rather than an online sale. Consistent with
14 This presumes the auction house reports the presale estimate honestly, not

strategically. For live art auctions, the evidence is mixed. Ashenfelter (1989) nds estimates are truthful, in that the mean of the high and low estimate is well correlated with the winning bid. Beggs and Graddy (1997) and Bauwens and Ginsburgh (2000), however, nd systematic underestimation for some kinds of goods and overestimation for others. Mei and Moses (2002) nd that expensive paintings estimates are biased upwards. Overall, Ashenfelter and Graddy (2003) conclude, "it is our impression that biases are not quantitatively large when they are precisely estimated."

SELLING ONLINE VS. LIVE

17

Proposition 4, an item with a given expected value is empirically more likely to be auctioned online the lower its valuation variance. 6. Simulation In this section, we examine the eect of transaction costs and information revelation using a qualitative response model. We assume that the sellers utility associated with the choice of the auction is the expected prot off and on plus an additive error term of f and on. The S S data are the upper and lower estimates x = [x; x]. The parameters we are interested in are the transaction costs cs and cb , and the inspection parameter k. Let = (c; k). Let U of f and U on be the sellers expected utility: U off = of f (x; ) + off and U on = on (x) + on: S S The seller sells the asset in a live auction if U of f U on. Thus dening Of f = 1 if the seller sells the asset live, P (Off = 1) = P (U of f U on ) = F (off (x; x) on(x; x; )) S S

where F is the distribution function of off on. The log-likelihood function is log L =
n X i=1

Of fi log F (on(x) off (x; )) S S

n X (1 Offi) log(1 F (on(x) off (x; ))): S S i=1 ^

The maximum likelihood estimator is dened by @ log L j ^ = 0: @ = We use a simple parametrization. Z=uniform [0:5; 0:5], X = + P Z, ui(s; x) = xi=n, and compute the functional form of the discrete choice model. In an online auction15, since H(w; m) = F (w)n1 ; 1 Z Z (EY1;n EY2;n) = (EY1;n EY2;n) = n n n(n + 1) S = nB = : (n + 1) Note that the sellers expected payo is decreasing in the dispersion and increasing in the number of bidders. Given the smoothness, the consistency and asymptotic normality of maximum likelihood estimator B =
We do not consider reserve prices in this simulation. It is easy to compute Bulow and Klemperer (1996) bounds.
15

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EIICHIRO KAZUMORI AND JOHN MCMILLAN

is standard (Amemiya, 1985, Section 9.2.2). The number of bidders is determined by k=n(n + 1) = cb: For simplicity, we approximate16 the solution of this equation by n = (k=cb )0:5 to make the model linear in parameters. We set the number of bidders in the online auction be two. Note 1860/1300=1.43 is the mean number of bidders online. Thus we obtain : 3 Note that, in this model, we cannot separately estimate k and cb: Now we estimate a probit model of 3190 samples, assuming off on~N(0; 4002 ), of f Coecient Standard Error z P>jzj 1=2 1=2 cb k 3.011 .7443 4.05 0.000 cs 222.2 22.80 9.74 0.000 Table 4: Estimates of Cost and Variance Parameters A possible value of c is 90 for k = 0:1: If there are 200 to 300 auctions in one day for live auctions, then if each bidder bids for ten assets, the total participation cost will be around $1000. The threshold value where the bidders rent from selling online is equal to that from selling live is $942.30. on(x) of f (x; ) = c0:5 k0:5 0:5 + cs S S b 7. Business Models Online auctions have not up to now reached their full potential. If our theory is correct, the use of online auctions in the rst few years of their existence has been unduly cautious. Sellers have been reluctant to opt for online auctions for high-value items. So far there is not enough evidence that the Internet is right for selling extremely valuable works. That is still a hard sell, said Sothebys.com executive David Redden in 2000.17 According to our model, however, what primarily determines whether the seller does better selling live than online is not the expected price. What matters is the dispersion of valuations, and the extent to which this dispersion is reduced if the bidders see the item for themselves. A high-value item can be successfully sold online if the bidders estimates of that value are tightly bunched. A high dispersion of value tends to go with a high expected value (in our data set they have a correlation of 0.9). The intuition that
16 For reasonably large k, the dierence between the solution of x2 = k and

x + x = k is small: for k = 10, the solution is 3.16228 and 2.70156. 17 Art News, Jan. 2000.

SELLING ONLINE VS. LIVE

19

extremely high value items should not be sold online therefore is typically correctbut it gets the mechanism wrong. High-end items whose dispersion of value estimates is similar online and live, like the the Declaration of Independence, are suitable for online sale. It seems that sellers do not fully recognize thisonline auctions of high-end items are after all still quite newand so the limits of online auctions may not yet have been reached. Could a seller design an auction to combine the benets of live and online auctions? An alternative auction form, in between live and online auctions, is oered by both Sothebys and Christies: in live auctions, bidders may participate from a distance, by telephone, fax, or internet. The auction-house web sites oer the catalogues for live auctions and allow advance bids, which an auction-house employee will submit during the course of the live auction. There is even a provision in some live auctions for real-time online bidding. Christies oers live streaming videos, so that people can bid in live auctions from their computers. From the sellers point of view, however, this in-between alternative oers none of the saving in transaction costs of true online bidding. Even from a bidders point of view, our analysis implies, this is inferior. Bidders would do better participating either directly in a live auction or in a true online auction. Distant bidders, who have not incurred the transaction costs entailed in seeing the piece of art for themselves, are competing against the live bidders, who have seen it. Less informed bidders, in common-value auctions in general, are handicapped when competing against better informed ones, and end up with little or no net gain (Engelbrecht-Wiggans, Milgrom, and Weber, 1983). When the artwork is of high value, they will be outbid by the better informed live bidders; when it is of low value, they can win the auction but risk overpaying. Online bidders in a live auction are in a no-win situation; the theory says they can expect to pay the items full expected value. They can overcome their informational disadvantage by either inspecting the item themselves at the presale exhibition or hiring an agent to do the inspection; but this means incurring the same transaction costs as the live bidders. Rather than providing the best of both worlds, mixing online and live bidding combines the disadvantages of both.

8. Conclusion The sellers choice between online and live auctions involves a tradeo between information generation, favoring a live auction, and transaction costs, favoring an online auction. Bidders do better online, even

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EIICHIRO KAZUMORI AND JOHN MCMILLAN

though they are relatively uninformed about the items true value, because their competitors are equally uninformed and so, from fear of the winners curse, the bidding competition is less erce. Sellers, also, in some cases do better online because of the saving in transaction costs. The analysis could be extended in various ways: to incorporate more general assumptions about bidders valuations (aliation rather than common value); to derive endogenous participation costs in the presence of bidder asymmetry; and to estimate participation costs and information revelation rates.

SELLING ONLINE VS. LIVE

21

9. Appendix: Proofs of the Propositions Proof of Lemma 1: First, compute the expected prot of the bidder and the seller in a standard ascending auction of the general symmetric model with n bidders and a signal distribution f. In an ascending auction, there exists a symmetric monotone equilibrium where each bidder drops out at a price equal to the expected value of the asset given the signal of bidders who have already dropped out and assuming that the bidders remaining in the auction have the same signal with the bidder (Milgrom and Weber, 1982a). Compute an expected payo B (xi) of a bidder i with a signal xi. By symmetry, B is independent of the identity of the bidder. Suppose bidder i with signal xi bids as if her signal is yi . Let the expected prot be B (xi; yi). Then Z

B (xi; yi) =

X i

(v(xi ; xi) v(y1;i; xi ))f(xijy1;i yi )dxi

where v(x) = E[sjX = x].and y1;i is the highest signal among bidders other than i. This is because bidder i wins if and only if bidder is claimed type yi is higher than the other bidders. If bidder i wins, the value is E[sjX = x]: dB (xi ) dB (xi ; xi ) = = dxi dxi Z @B (w; y) j y=w dw: @w

This is because, since v and f are smooth and bounded, we can apply the envelope theorem. The bidder with the lowest type never wins, so her expected prot is zero. Then, Z Z Z Z

xi 1 xi 1 Xi

B (xi ) = = (where H(w; n) =

Xi

@vi(w; xi) f(xijy1;i w)dxi dw @w

H(w; n)dw @vi(w; xi ) f(xijy1;i w)dxi :) @w

Then the bidders ex ante payo is:

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EIICHIRO KAZUMORI AND JOHN MCMILLAN

B =

Z Z Z

xi

H(w; n)dwf (xi)dxi g+1 1 Z

1 xi

The rst line is by taking the expectation of B (xi ) and changing the order of integration. The second line is by integration by parts. RThe R third line is by integration by parts using the formula ab = [ab] a0b R with a = H(w)dxi and b = F (x): The sellers ex ante prot is the dierence between the items expected value and the bidders expected prots: S = Es nB Second, we compute expected prots in an online auction without a reserve price. From the previous formula, but with N bidders, Z on B = H on(xi ; N)(1 F on(xi ))dxi : on S = Es N The number of bidders in the live auction is determined by the zeroprot condition (with bidders entering until prots are competed away, ignoring the integer constraint): Z off B = H off (xi; nof f )(1 F of f (xi))dxi = cb The sellers ex ante expected live-auction prot is of f = Es noff cb cs S Z off = Es n H of f (xi ; nof f )(1 F off (xi ))dxi cs : Z H on(xi ; N)(1 F on (xi))dxi :

= f H(w; n)dwF (xi ) Hi(xi; n)F (xi )dxi 1 Z Z = H(w; n)dw Hi (xi; n)F (xi)dxi Z Z = H(xi ; n)dxi Hi(xi ; n)F (xi )dxi Z = H(xi ; n)(1 F (xi))dxi :

Proof of Proposition 1: First, we claim that it is suce to show that bidders expected prot is lower in an auction with 1 than one with 2. This is because the sellers expected prot is the dierence

SELLING ONLINE VS. LIVE

23

between the value of the asset and the bidders expected prot. (By the assumption of absolute common value, the value of the asset is independent of .) Second, we compute the lower and upper bound of the bidders expected prot. Recall from Lemma 1, the bidders expected prot is Z B = H(xi; n)(1 F (xi ))dxi : Thus, from the denition of H and the signal-sensitivity condition (3.1), B is bounded: m Z F (xi )
n1

(1 F (xi ))dxi B M

The distributions and densities of the order statistics are (David, 1981): F1;n(x) = F (x)n F2;n(x) = F (x)n + nF (x)n1(1 F (x)) f2;n(x) = n(n 1)(1 F (x))F (x)n1f(x) Z Z Z

F (xi )n1(1 F (xi ))dxi :

and therefore a bidders expected prot can be written as: Z F (xi)

n1

(1 F (xi))dxi = (1=n) = (1=n) = (1=n) =

n(F (xi)n1 F (xi)n )dxi (F2;n (xi) F1;n(xi ))dxi xi(f1;n(xi ) f (x2;n(xi))dxi

1 (EY1;n EY2;n) n = (EZ1;n EZ2;n ): n where the third equality uses integration by parts, the fouth is by denition, and the last comes from the properties of mean-dispersion families (where Z is the base random variable as dened above). Third, we show that the bidders prot is lower in auctions with dispersion parameter 1: The upper bound of the bidders prot from an auction with dispersion parameter 1 is 1M=n(EZ1;n EZ2;n ): The lower bound is 2 m=n(EZ1;n EZ2:n ). Thus the bidders prot from an auction with 1 is lower if 1M=n(EZ1;n EZ2;n ) 2m=n(EZ1;n EZ2:n)

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EIICHIRO KAZUMORI AND JOHN MCMILLAN

which implies (9.1) 1 < (m=M ) 2:

Proof of Proposition 2: First, we claim B is monotone decreasing in n. The sellers prot is the highest marginal revenue among bidders. Then the addition of one bidder weakly increases the sellers prot. This implies that the total surplus for the bidders decreases. Thus the bidders ex ante prot decreases. Second, we claim that n is monotone increasing in :The number of bidders n is determined by the zero prot condition: B (n; ) = c. From the previous discussion, B (n; ) is monotone increasing in and monotone decreasing in n. Thus n is monotone increasing in : Third, we claim that the sellers expected prot is monotone decreasing in . From Lemma 1, the sellers expected payo is the value of the asset minus the total payment of entry costs. By the absolute common value assumption, the value of the asset is constant and the total payment of entry cost is monotone decreasing in . Proof of Proposition 3: From Lemma 1, and given that m = M as a result of the mean-common-value assumption, a bidders expected prot is a constant multiplied by the dierence in the order statistics, (EY 1;n EY2;n), which is independent of the mean parameter . Proof of Proposition 4: First, we compute an upper bound of the sellers prot from the online auction. By Bulow and Klemperer (1996), the sellers expected prot from an auction with n bidders with an optimally dynamically set reserve price is less than the expected prot from n + 1 bidders without a reserve price. Thus, on S H on (xi; N + 1)(1 F on (xi))dxi: Z V (N + 1)m F on(xi )N (1 F on(xi ))dxi = V (N + 1)
on on = V m(EY1;N+1 EY2;N+1) Z Z = V m(EY1;N +1 EY2;N +1 ):

Second, we compute a lower bound on the sellers prot in a live auction with N bidders. By the signal-sensitivity condition (3.1), there exists M such that @v(x)=@xi M. Thus:
Z Z of f V kM(EY1;N EY2;n ) (N + 1)cb cs : S

SELLING ONLINE VS. LIVE

25

Third, assuming there are N bidders in the live auction, we compute k and 0 such that for k k 0 and 0 ; a bidders rent is smaller in the live auction. This holds if Z Z Z V kM(EY1;N EY2;n) (N + 1)cb cs V m(EY1;N+1 Z EY2;N+1)
0 Z Z Z Z kM(EY1;N EY 2;n ) + (N + 1)cb + cs m(EY1;N+1 EY2;N+1) Z Z Z Z (m(EY1;N+1 EY2;N+1 ) kM (EY1;N EY2;n)) (N + 1)cb + cs

Thus for

if

Z Z Z Z k m(EY1;N+1 EY2;N+1)=M (EY1;N EY2;n)

the sellers payo is higher in the live auction. Fourth, we compute the conditions under which at least N bidders enter the live auction. This occurs if each bidders expected payo with N bidders isRhigher than the entry cost: Z Z off m F on(xi )N (1 F on (xi))dxi = m k(EY1;N+1 EY2;N+1) B N c b: That is, Ncb Z EY2;N+1 ) Fifth, we nd when both conditions are satised. For each k that Z Z Z Z satises k m(EY 1;N+1 EY 2;N+1 )=M(EY1;N EY2;n ); there exists
Z mk(EY1;N+1

Z Z Z Z [(N + 1)cb + cs ]=[m(EY1;N+1 EY2;N+1) kM(EY1;N EY2;n )];

max[

Z mk(EY1;N+1

where the sellers prot is higher in the live auction. In addition, if is high enough that expected value of the allocation V () is higher than cbN + cs ;the seller earns a positive prot. Proof of Proposition 5: In an online auction, by Lemma 2 of Bulow and Klemperer (1996), the sellers reserve price is the price that makes marginal revenue equal to zero. Thus, if the bidder with the highest marginal revenue is less than zero, the seller does not trade.

Ncb (N + 1)cb + cs ; ] Z Z Z Z Z EY2;N+1) m(EY1;N+1 EY2;N+1) kM (EY 1;N EY2;n)

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EIICHIRO KAZUMORI AND JOHN MCMILLAN

Second, we compute the reserve price in a live auction. If the zero prot condition is binding, the sellers expected prot is equal to the expected social surplus, thus the seller, who has the value zero for the asset, does not trade. If the zero prot condition is not binding, then each bidders marginal revenue is strictly higher than that in an online auction, thus the probability of exclusion is strictly lower.

SELLING ONLINE VS. LIVE

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10. Tables Table 1: Number of auctions by category Live Jewelry 635 Paintings and sculpture 621 Clocks and watches 562 Antiques and furniture 286 Books and prints 283 Silver and ceramics 0 Photos, stamps, coins 0 Collectibles 0 Online 73 113 41 233 37 259 272 356

Table 2: Sale rates Live Online Paintings and prints 83% 44% Watches and clocks 82% 63% Jewelry 54% n.a. Furniture n.a. 66% Coins and silver n.a. 80% Books 57% n.a. (n.a. means no data available) Table 3: Regression of online vs. live O EstAvg EstDi Const Obs LR Prob>chi2 PseudoR2 Coecient Standard error z P>jzj 0.0000686 0.0000135 5.09 0 0.0000336 0.00000461 7.30 0 -0.493068 0.0325403 -15.15 0 3180 1207.75 0 0.2801

Figure 1: A Painting Offered on Sothebys.com

Estimate: $25,000 to $35,000

Seller: gsauer (353) View sellers feedback

Description: An oil on canvas painting by William Clapp in a custom wood frame with gold leaf. An old label verso states: "Guaranteed Authentic, William H. Clapp, C-691142, Lakey Gallery, Carmel". [Lakey Gallery handled the artist's works in the 1960s]. It should be noted that this painting is one of the largest he produced. Notes: William Henry Clapp [1879-1954] was born in Montreal, Canada and moved to Oakland, California with his family in 1885. He returned with his family to Montreal in 1900 to study at the Montreal Art Association School. In 1904, he went to Paris and studied at the Ecole des Beaux Arts and Academie Julian. He was strongly influence by the French Impressionists and Pointillists at the time. He returned to Montreal in1906 and in 1917 moved with his family to Piedmont, California where he became the director of the Oakland Art Gallery from 1918 to 1949. At this time, be became an aggressive force for modernism and experimentation. As a member of the Society of Six he helped create a modernist style that was uniquely Californian and a rebellion against that espoused by the tonalist styles of Arthur Mathews and William Keith. His works are in numerous institutions. Condition: In fine condition. Measurements: 30"x36"; frame 40"x46"

Figure 2: A Clock Offered on Sothebys.com

Estimate: $2,000 to $3,000 Seller: empiregalleryla (36) View sellers feedback

Description: Charles X Alabaster Portico Clock. 19th century. The architectural case centered by a circular gilt bronze dial inscribed "Vollabys Dany' A Dunkerque", and displaying a rosette pendulum on bun feet. Notes: Mid 19th Century Condition: Small scratch and chips repolished, overall very good condition. Measurements: w 11", h 20", d 6 1/2" Source of Figures 1 and 2: http://sothebys.ebay.com, January 14, 2003

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