In contrast to the international market in major centers such as New York and London, the South African market is distinguished by the presence of a clear market leader, and market follower amongst two auction houses that together virtually exhaust the domestic art market. A central concern of the present paper is how this market structure affects behavior in the market. We develop a theoretical framework to consider the interaction between market leader and follower in the context of a fine art market. Core implications are that the market follower is forced to issue excessive price estimates on art work that it attempts to attract for auction, at the cost of a higher buyin rate in auction. We test the implications of the theory against a data set of 7554 auction lots. A direct and an indirect test of the theory on our data robustly and strongly confirms the prediction of our model.
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