Profit Pursuit or Private Enjoyment? A Structural Analysis of Valuation Mechanisms and Price Disparities in NFT Avatars

Abstract

Non-fungible token (NFT) avatar markets provide unique environments where valuations reflect both financial expectations and subjective preferences. Prior work has documented price disparities across appearance traits, particularly skin tone, yet the mechanisms underlying these price disparities remain unclear. Using the complete transaction history of the CryptoPunks collection from 2017 to 2023, we examine whether these disparities arise from differences in common value (shared resale expectation) or private value (subjective preference). We first establish systematic price gaps between lighter- and darker-toned avatars through reduced-form analyses. To identify the mechanisms generating these disparities, we develop a structural model of bidding and transaction to decompose buyers' willingness to pay into common and private value components while accounting for market participation. A Hidden Markov Model with Poisson emissions is adapted to infer latent buyer arrival rates and isolate private value intensity from participation effects. Our estimates show that common values do not differ meaningfully across skin-tone groups, whereas private value intensities are substantially higher for lighter-toned avatars. Counterfactual analyses demonstrate that equalizing private value intensity eliminates the price disparity, while equalizing participation patterns has negligible impacts. These findings reveal that price disparities across skin tones are rooted in subjective preferences rather than expected resale value or participation effects. For marketplace operators and creators, this implies that closing these disparities necessitates demand-driven interventions and strategic trait design, rendering informational or liquidity-based solutions insufficient. We contribute to collectible literature by providing one of the first structural decompositions of common and private value components in asset valuation.