This paper contains a new review of the research of the last decade that has been designed to shed light on how the art auction system works, what it indicates about price formation, and how well it performs. We begin with a short description of the mechanics of the auction system and then organize the remainder of our discussion around two major topics. The first topic concerns how researchers have used auction prices. We begin by discussing the returns to holding art and whether certain classes of art make a better investment. We then discuss studies that have used auction prices to determine the importance of individual works of art and individual artists. We conclude this topic by discussing whether different auction houses achieve systematically different prices. The second topic focuses on studies that examine the influence of the auction mechanism on prices. We begin with a discussion of the Christie's and Sotheby's price fixing case and the role of the competitive behavior of auction houses in the determination of prices. We move on to discuss the role of experts and price estimates in auctions. We then look at whether items that fail at auction subsequently return less than items that have not failed and furthermore discuss sale rates and reserve prices. We conclude this topic by reviewing the extensive literature that has documented and tried to explain why the prices of identical objects are more likely to decline than to increase when multiple units are sold. Subsequent empirical research has tended to document declining prices even when the objects are imperfect substitutes.