July 02, 2010

Cox prices and the bell curve

Of all the things I might be, a statistician is not one of them. Don’t expect an academic lecture on the subject from me.

Many readers expect my catalog prices should somehow predict the middle of a theoretical “bell curve.” They assume that when certificates are offered for sale, some will sell for more than my estimates and some will sell for less but they expect my price estimates to be about “average.”

In practice, readers usually notice my prices are usually higher or lower than the prices they are used to. Why is that?

I view the market as terribly thin. There are very few certificates to go around and items come up for sale very infrequently. No matter how much collectors might be willing to pay, they cannot possibly go out and buy everything they want. They MUST wait. Many certificates appear for sale only once every ten to twenty years! It is pretty hard to construct a nice bell curve distribution to explain that kind of market.

In my opinion, I see no justification for predicting a single bell curve of certificate prices simply because I see no single market. Instead, I see several very distinct markets, each with its own corresponding price curve. Collectors rarely participate in more than a few markets and many do not realize that certificates sell for wildly different prices elsewhere.

The diagram above shows what I mean.

Advanced and intermediate collectors are well aware that eBay prices are absurdly low compared to the rest of the collectible certificate market. Typically, my catalog price estimates are 1.5 to 2 times higher than typical eBay prices. At the same time, my estimates are often half or less of European dealers’ catalog prices. In general, my prices tend to be somewhere in the ranges of prices offered by major American dealers.

Full-fledged American auction houses usually realize higher prices than eBay. Price differences between eBay and major houses depend very much on the types of certificates being sold. Rare certificates perform much better in formal auction houses, but common material often does better on eBay. My diagram shows the typical price overlap.

European auctions tend to sell low percentages of items compared to American auctions, but the disadvantage is offset with higher prices. Major dealers, regardless of whether they are North American or European, buy much of their inventory from auctions. Consequently, dealers catalog prices exceed prices realized in auctions.

I try to estimate certificate prices at levels that average collectors might expect to pay if they want to fill their collections moderately quickly . If they are very patient, collectors can often wait for appearances on eBay and potentially save bunches of money. Conversely, if collectors want specific certificates very quickly, they may need to pay very high prices, possibly from European suppliers.