Third-Party Grading as a Useful Measure of Demand: Evidence from NBA Cards

Abstract

Abstract Since collectibles are potentially prized artifacts, determining value is subjective by nature. The value of any collectible is difficult to measure because it is perceived based on desirability, condition, and rarity. The purpose of this paper is to better understand the determinants of market price in a sports card market, namely rookie cards from the National Basketball Association. Empirical data from 2001 to 2009 were collected from the eBay and Professional Sports Authenticator websites to disaggregate price into intrinsic value versus quantity available. After controlling for market supply, third-party grading was used to help quantify demand. Simultaneous endogeneity of both market price and quantity was tested through a two-stage least squares model. This study found that both third-party grading and player performance variables affect the value of graded National Basketball Association basketball cards. The Professional-Sports-Authenticator-10-grading dummy variable carries the largest economic impact. Holding all else constant, a card graded Gem Mint trades at roughly 339% above a grade 8 baseline. The use of third-party grading is a novel measure of demand in markets for collectibles.

Affiliated Institutions

• South Dakota State University US

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