"the art market is an almost perfect, if somewhat idiosyncratic, commodities market"

New York Art Paper
April 5, 2004
Anonymous Author

For all the idealism our class displayed and heard on our trip to New York, it was hard not to be shaken by the profound epiphany that the art market is an almost perfect, if somewhat idiosyncratic, commodities market. A close look at the framework of the market reveals that the art market is probably not all that structurally singular even if its players can appear to be passionate ideologues rather than simple suppliers and demanders.

The following paper contains some observations that I made on various facets of the art market that we saw on our trip to New York. Given the disjointed nature of the experience and the market itself, I have chosen not to follow any contrived rhetorical structure in favor of analyzing certain aspects of what I personally found interesting or engaging about the market.

It would seem that instead of a completely cohesive and all-inclusive market, the New York art scene consists of a number of discrete categories that demarcate themselves on the prices of their works. The competitive space for the Williamsburg galleries that traffic in emerging artists whose works generally sell for less than five figures is a clearly delineated space in which the players are the other similar galleries in the area, whereas an emerging-artist gallery such as xxxxxxxx Hall could not really be considered a player in the ultra high-end competitive space of the xxxxxxxxxx Gallery. These businesses could technically be considered competitors since they both sell paintings, but the market for a five-thousand-dollar painting obviously has many more buyers and suppliers than the similar market for a million-dollar Warhol flower. Similarly well-defined markets are apparent for mid-range works that sell for less than six figures, and the “blue-chip” market that captures the very top of the market, usually by artists who have shown some historical significance. While there may be some overlap in clientele here, the extreme price differences from one end of the market to the other place some high-end work an even more extreme luxury.

One interesting facet of this market segmentation, though, was that it seemed to get less intellectually haughty as we moved up the food chain. It struck me as interesting that xxxxxxx xxxxxxx and others were openly disdainful of potential clients who would speculatively use art as aesthetic ornamentation to match their sofas. I can think of few other markets in which the suppliers would avoid clients on a strictly ideological basis; how odd would it be if a salesman refused to sell you a refrigerator unless you promised not to store beer in it? At Christie’s and the xxxxxxxxxx gallery, though, the suppliers seemed much more open to sell to any and all comers without questioning their motives. Perhaps there is a certain measure of self-selection at work here; a complete miscreant probably would not spend $40 million to coordinate a Picasso with his futon. However, it is interesting that the more financially successful consortiums were the ones that seemed to have the smallest ideological stake in their work. Visiting the xxxxxxxxxx apartment really drove this point home for me; if Bill xxxxxxxxxx only displayed “what he liked” the way Joel xxxx of xxxxxxxx Hall professed to do, it seems like the gallery would only have carried Matisse, Miro, and Picasso with a smattering of Calder and Freud. That said, he seemed to realize that Impressionism sells extremely well and made a nice addition to his gallery, whether or not he was selling huge Monet canvases to a dilettante with an artistic bent, a corporation needing an iconic status symbol, or a decorator needing something to match a particularly troublesome set of curtains.

That said, though, I found it intriguing that the extremely high-end part of the xxxxxxxxxx galleries were not open to the public. Obviously, it would increase the gallery’s liability and augment the risk of damage to the works displayed if any interested party could stroll in off the street and peruse the Monet canvases currently on display higher in the xxxxxxxxxx’s display floor, and the gallery is certainly being run as a business, not a museum. Despite these considerations, however, it seems that in an industry as acutely aware of status symbols as the art industry is, maintaining this sort of closed-door policy could be something of a double-edged sword. While the eight-figure prices we saw on many of the paintings in the gallery reflect the works’ importance within the art history canon, there is at least some “status symbol” component of these prices, so keeping these works out of the hands of the plebes by hiding them behind a velvet rope may maintain the conspicuous-consumption aspect of the high-end works. At the same time, though, letting the entire world know that these works are in the xxxxxxxxxx Gallery could simultaneously increase the value of the xxxxxxxxxx brand until there is a certain amount of additional implicit value that can be derived from not just the activity of buying a Picasso, but of buying a Picasso at the xxxxxxxxxx Gallery. If the xxxxxxxxxx brand could be made synonymous with “art” for the casual observer in much the same way Christie’s and Sotheby’s names are, there could conceivably be some windfall in terms of prestige. However, this course of action could also erode some of the prestige of the gallery by making it seem more accessible and less exclusive, so there is no clear reason to act in either direction.

Observations like these drove home the dearth of typical business thinking in the art world and how well differentiated the galleries with actual business plans are. xxxxxxxx Hall seemed to be doing fairly well; it was one of the only Brooklyn galleries with a booth at the high-profile, high-rent Armory Show. However, there did not seem to be a bounty of business acumen coursing through the veins of this gallery or the other establishments in its cohort. Perhaps it was unreasonable of us as a business-oriented class to expect these galleries to have clearly delineated organizational structures since not everyone speaks in business jargon, but Joel xxxx’s response of, “Um, I have employees that work in the galleries,” seemed somewhat typical of the business climate of the small-gallery culture. Firm business advising or revenue planning seemed to be a luxury much like comprehensive marketing: something the galleries probably would have liked, but could not afford. While it might be easy for a class of business-minded students to condemn this sort of thinking on the part of a gallery, there is probably something to be said for a well-trained curator displaying the works that he likes. If someone with a scholastic interest in art displays quality works that he or she enjoys, it seems reasonable that a patron would also enjoy one of these works enough to garner sales. Of course, if a fairly successful gallery in its niche has been operating without an explicit business plan and apparently functioning fairly well, one must assume that the curator is lucky enough to have “the eye” that so many of our interviewees mentioned in hushed breaths. This subjective skill might be all it takes to gain some small measure of success in the certain low-end segment of the market, regardless of any true business acumen per se.

The other interesting supply-side aspect of the art market was, as some would put it, the plight of the individual artist trying to make a name for himself in the daunting art world. The chain through which an artist has to ascend to gain solo shows, museum placements, and eventually additional financial success seemed pretty clearly demarcated and similar to the proverbial ladder one would have to climb in any business. If one was inclined to look for an analog in which subjective talents allowed an aspiring star to rise through the ranks, then the minor league system of baseball makes a nice analogy. There are certainly low-end galleries for emerging artists like many of the ones we visited in Chelsea and Williamsburg in which the implicit value of having one’s art displayed in an open forum through which exposure could be gained could conceivably outweigh the dollar value of any sales recorded. This low level of gallery sales could be thought of as Class “A” baseball, a quagmire of relatively talented players from which the cream can continue to rise.

If sales are brisk and critiques favorable, then it seems that an artist can ascend to a higher level of private gallery, perhaps on a little farther uptown, and gain placement in large, star-making shows like the Whitney Biennial. These upscale galleries afford the artist considerably more financial security through better support, larger marketing budgets, and access to prestigious clients with well-known display collections. On this note, one interesting thing I picked up from perusing artists’ bios and resumes is that they employ lists of collections in which their work is exhibited in much the same way members of academia list their publications on a CV as a status symbol; the most glaring example of this phenomenon came in Winston-Salem, though, as Jon xxxx had installed a banner letting everyone know exactly where his work was exhibited, even if the museums were not particularly prestigious.

In keeping with the baseball metaphor, extremely high-end galleries like xxxxxxxxxx could be likened to the major leagues. Few artists will ever see these green pastures, and even then, they could be dead for decades before their work becomes fashionable. It might have looked like the xxxxxxxxxx family simply thumbed through art history texts and picked up whatever artists they saw pictured on the pages, it makes perfect economic sense why these dead artists are so much more valuable than most living ones. For the most part, it seems like it takes time for the real wheat to separate itself from the chaff in the art market, so today’s trendy hot artists might in twenty years be relatively insignificant. Since this process takes time, perhaps due to the dilution of any novelty the work has, it takes some time to climb this high in the hierarchy of the art world.

Moreover, it would seem that an essential derivative of art’s value as a commodity stems from its relative scarcity, and, although it might be a bit morbid, nothing limits an artist’s output like ceasing to live. A deceased artist has a discretely defined oeuvre that living artists lack, as well as a completely realized mature style, although unfortunately for collectors, they also seem to command higher prices. It would be unreasonable to suggest that death is a great career move for an artist, but it does seem as if it would be a surefire way to augment sales.

Curiously, it seemed that marketing was a relatively low priority for the smaller galleries we visited. While the current system of sending postcards to interested members of a mailing list seems relatively effective, or at least popular, it does little to differentiate between the various galleries, and few large, vibrant works like the Cristoph Morlinghaus photographs at xxxxxxxx Hall can really be done justice on a four-by-six-inch postcard. However, these postcards are probably cheap to print and mail, so the marketing is probably fairly cost-effective.

Although few galleries expressed an interest in electronic media, most of the established galleries in Charleston and Williamsburg employ web sites that offer a more complete description of an exhibit than can be crammed on the back of a postcard. These pages, which often include artist bios and digital files of displayed works, offer another low-cost, highly accessible means to disseminate information, as do mass emails to previous buyers, a tactic utilized by Mixed Greens. At this low end of the market that deals in largely unknown artists, it seems that any visual engagement with the artist’s work itself, be it on a postcard, website, or email attachment, is the quickest way to spur interest and, consequently, sales. However, marketing seems to be a relatively low priority of the business establishment on the low end of the market.

The easiest explanation for the dearth of marketing on the low end of the market is that the smaller galleries are already operating so close to barely covering their marginal costs that marketing becomes something of a luxury good. In a classic circular problem, though, well-marketed art would seem to be able to command a higher price, so placement in the poorly-marketed lower segment of the market seems to be self-perpetuating unless the emerging sector can manage to market itself a bit better. However, better marketing of quality art in the emerging artists group would probably force demand and prices up until the artist entered the more lucrative middle market. Since art has no true utilitarian value: a painting can’t be used to drive a nail or keep a buyer out of the rain, so as an aesthetic good its demand and price are predicated upon utility decisions made by the individual buyers in the market on just how much an individual painting will enrich their lives. From what we have seen from examining markets, it seems that high prices and demand are highly correlated with a certain measure of fame or renown.

The xxxxxxxxxx’s works by Monet were certainly very nice examples of Impressionist technique, but would they command millions of dollars if Monet had not been consistently marketed as a “great” artist for a century? Of course, this sort of logic exposes another mousetrap: one would expect the xxxxxxxxxx Gallery would have to do less marketing because their high-end works were already firmly entrenched as canonical and valuable. By the time that a painting makes it to their gallery, the grunt work of having to market it at all the lower levels has finally paid off for the more upscale galleries while the artist and other galleries reap no further financial reward from the work. Without passing a moral judgment on either side, I do feel that the xxxxxxxxxx Gallery has crafted a fairly ingenious equilibrium for itself here. The massive amount of startup capital needed to begin an enterprise of high-end dealership provides a significant barrier to further entry into the market, so these dealerships must feel pretty secure about their position in the market.

Christie’s seems to have a completely different stance on marketing that fell somewhere in the middle of the emerging market and the upscale market. While Christie’s auctions feature an obvious plethora of fantastic paintings, it seems that their catalogs are not loaded with the major canonical works that the xxxxxxxxxx Gallery enjoyed, so some marketing was necessary to convince potential buyers that they are well-advised to spend tens of thousands of dollars on a small Glackens canvas that is not “great” but merely “good.” This point really drove home to me why the auction houses spend so much time marketing themselves through their catalogs.

While many members of the class seemed a bit uncomfortable with this marketing of specific works within an auction format, this practice makes perfect sense to me as an objective observer with an economist’s point of view. As I mentioned earlier, art has no “pure” utilitarian value and is an extreme luxury for most consumers, so it follows that establishments that sell art, or any purely aesthetic good, would be charged with drumming up some demand for their product. Since art is one of these purely aesthetic goods, it is certainly hard to hang a hard valuation figure on it, so one must assume that the market value of a work is the highest price the market will bear at auction. It is not as if the work is a mass-produced household item like a Michael Graves teapot that is subject to fewer monopolistic forces within the market. However, the market for prints has seemed to circumvent this sensibility somewhat by charging different prices for different production numbers in a series; I noticed in several galleries and at the Armory Show that lower print numbers are apparently preferable to higher ones, which seems like a completely arbitrary distinction between otherwise identical works, but one the market seems to bear.

This concept of the art market as a perfectly competitive market is also a testament to the huge number of individual artists supplying the market with works. By definition, there is no real barrier to entry for suppliers in this market. Nothing can stop me from hanging my shingle and calling myself a professional artist, save that few people want fingerpaintings, no matter how well they coordinate with their sofa and carpet. Even just within the boundaries of the New York boroughs, there are probably too many commercially active artists to count, even if the bulk of the sales might still be concentrated at the top of the market due to the huge price discrepancies that persist throughout the market. In addition to being one of the facets of a perfectly competitive market, this high number of suppliers keeps prices down by fostering a large amount of competition on prices, although the price elasticity measures for most individuals affluent enough to collect art, even by emerging artists, might be low enough to keep a discrete equilibrium price from being met. However, it seems that there are actually competitive equilibriums in the New York art market, even if there is no single point at which the market converges. The emerging artist market seems to be relatively stable, with priced ranging up to about ten thousand dollars and deviating from some sort of mean due to the size of the work or just how much the artist has emerged up to this point in his career. Following that, the market for established middle-market artists that fluctuates according to the size and importance of the work and the notoriety of the artist before reaching the highly variable prices of the blue-chip market that seem as susceptible to trends in fashion and the financial market as any of the other categories, if only because of the financial discrepancies of spending three thousand dollars for the canvas of an emerging artist and paying three million for one from an established commodity.

All of this analysis points to a brutal competition for sales among emerging artists. This fact was apparent after a day of strolling through the Chelsea galleries. Only the best or most provocative works were memorable, and even fewer of these artists’ names or locations could be recalled without the aid of a pen and paper. All of this competition is certainly daunting to a new artist trying to find their bearings in the art world and make enough money to stop waiting tables, but in terms of economic theory, it also implies that only the best artists will ascend to the higher ranks and start commanding higher prices. With so much competition, it is impossible for an artist to climb the ladder just because there are no better alternatives to potential buyers. Instead, the living artists who participate in this open market are assured of greater sales and prices only if their work is of a certain quality.

Of course, the real crux of the whole question of the New York art market is what metric one uses to define “quality.” Is it just accessibility and aesthetic grace, or does it also encompass a higher goal of artistic inspiration? Opinions vary, and no one seems quite sure, and therein lies the idiosyncratic nature of the market. In the market for most other commercial goods, quality can be easily tested, but for an aesthetic good such as art, there is a little luck, a little guesswork, and a lot of crossed fingers.