Essays

Art Market Micro Economics

In recent years the contemporary art market has grown into a global business that turns over hundreds of millions of dollars every year. The pattern of growth in this market mirrors that of international art expositions, which, from their beginning in Venice in 1895, have grown exponentially so that now more than 60 art biennials and triennials are in existence, with as many as 27 being held in any one year. These exhibitions are among the world’s most important, prestigious and highly visible showcases for top quality international contemporary art.

Most of these events are held with the financial support of the host country government, as they are seen to achieve strong and positive art world attention and to maximize the visibility and international standing of the host country. International art biennials and triennials aim to contribute to the growth of markets for the host country and to give the local community a sense of pride. They aim to spur success in other sectors through multiplier effects in a virtuous economic circle. Success in one part of the creative economy is believed to help contribute to further success in another. They are a major component in the system of cultural production, distribution and exchange.

These events are also an important platform on which curators are able to launch their ideas on a grand scale and heighten their visibility and prestige in the international art world. In the increasingly competitive global economy, cities and regions everywhere are looking for ways to maintain their edge, to grow their economy, to attract and encourage new business development, to attract and retain talented people, and to improve the quality of life for their citizens. The nexus between culture, creativity and the economy is attracting the attention of governments of all stripes.

While these high-profile events are important to raise the profile of contemporary art in a community, of more direct importance to buyers and sellers of contemporary art is the growth in the number and frequency of international art fairs. Art fairs are now much more than a trade fair catering to the needs of limited numbers of specialist dealers. They have become a vehicle for a unique form of collaborative curatorial practice that may be called ‘symbiotic oligopoly’. [1]

Symbiosis is the association of two different organisms living attached to one another or in close proximity with each other to the benefit of at least one of the parties. Sometimes the term can have negative connotations in the case of parasitism, when one member of the association benefits while the other is harmed, but in most instances, and especially in this context, the term is used to describe a relationship that is to the mutual advantage of both parties. An art fair provides a return to the organizer and presents an opportunity for galleries and dealers to penetrate new markets and to achieve a higher profile collectively than would be possible if they were working independently.

An oligopoly is a market dominated by a few sellers. In an oligopolistic market each seller is able to influence the terms of trade in the market and is aware of his own market power as well as that of others. Oligopolists differentiate their products even when their products are physically the same. An oligopolist’s share of total market sales will depend largely on the extent to which his product is similar to, or different from, the products sold by other oligopolists in the market. The use of brand names and advertising is widespread and non-price competition tends to be more important than price competition. For dealers working in the art market, the product ‘art’ is differentiated by the relative strengths of their ‘brands’, which in this analysis are the various artists they choose to represent.

At an art fair, the two terms come together as a form of collaborative curatorial practice in the way the fair director and participating galleries interact and in the way the art and artists are selected. The fair director begins in much the same way as the art biennial director: with a curatorial thesis. However, rather than setting out a proposition for exploring some theme or issue, the art fair director will identify a target market and then call for proposals and issue invitations to participants. The ability of the fair director to judge the market, the quality of his relationships with government agencies and sponsors and his ability to deliver new customers to the fair will all be taken into account by the participants when deciding whether or not to participate. The participating galleries are all rival organizations, acting independently, but with equal access to the same information. They will make their own decisions as to whether or not they join the fair based on their assessment of the potential of the market to give them a return on their investment.

Both art biennial directors and fair directors then embark on a selection process that will result in the long list of potential participants being whittled down to a select few mediated by a variety of factors including quality, geographic spread, market conditions and other issues. In some cases the selection of individual artists and artworks by each of the participating galleries is further mediated by awareness of local cultural sensitivities and prohibitions. It is the business of the participating galleries and dealers to be aware of recent market developments and to respond accordingly. ‘Symbiotic oligopoly’ is thus a commercial curatorial strategy involving the mutually beneficial relationship between art fair director and commercial gallery participants and their joint and several assessments of what the market will bear, mediated by the individual participants’ assessment of the merits of their respective ‘brands’.

Of course, it is always possible that the cosy relationship between fair directors and participating galleries can come unstuck, especially if there is any suggestion of unethical behavior which might favour one party over another or which otherwise privileges the director and his associates over and above the other fair participants. In these instances the symbiosis may be viewed by the aggrieved parties as parasitic with rancorous consequences.

For many years the growth in the contemporary art market was constrained by the lack of an effective secondary resale market. Commercial galleries and art dealers were very obliging when it came to selling work to collectors in the primary market, but if those collectors then wished to divest themselves of these same works, they could be hard pressed to find buyers at a fair market price. A fair market price is usually defined as the price that an interested but not desperate buyer would be willing to pay, and an interested but not desperate seller would be willing to accept on the open market, assuming a reasonable time for an agreement. The phenomenal growth in some segments of the contemporary art market has to a very large extent been driven by the growth in the secondary market. Previously, the auction houses operated solely in the resale market but now, in Asia in particular, they are working directly with artists to consign works to market straight from the studio.

The growth in contemporary art markets is highly segmented. For some markets, for example, contemporary Australian art, the market remains staunchly parochial, with few buyers and sellers other than Australians themselves. But other markets have experienced tremendous international growth and show little sign of slowing. It is now possible for sellers of contemporary Chinese art to consign works to specialist contemporary Chinese art auctions in London, Zurich, New York, Singapore, Beijing, Shanghai and Hong Kong and to general contemporary art auctions anywhere. The market for contemporary Chinese art is now much larger than ever before. A more active market for art means that there are more collectors active in the market. They are active buyers because they know that there are a number of different avenues available to them to sell their works if they choose to do so. In addition, there are more museums collecting contemporary Chinese art because they realize that to be contemporary means being global.

The art market has in the past tended to be concentrated in a relatively small number of cities that had a critical mass of wealthy collectors and patrons and the infrastructure of galleries, dealers and auction houses to support them. However, the growth of the creative economy and the shift towards knowledge-based enterprises has profound implications for this market and for society as a whole. The new economy impacts in many complex ways on the structure of society, on the culture of a community, on the fabric of the city, on the education system, on corporate business management and the nature of work, on the political process and on public policy administration. Not least, the creative economy has given rise to larger numbers of people who are more mobile and flexible in their lifestyle choices. The traditional art centres are still important drivers of the art market but their influence is being supplanted as the flow of news and information, ideas and intelligence, and products and services become freer and faster.

The market for contemporary art is just one part of the larger process of globalization of culture. If it continues to grow in the same vein there is a very real possibility it will develop the same homogenizing character as those multinational corporations that provide uniform products, ideas and values across borders and cultures. A supranational meta-culture may appear on the surface to be in constant flux as its dominant values are created and re-created from different sources, but if those same values are designed to meet some brand standard then the real result is an irreversible erosion in cultural diversity.

Some artists choose to serve this market by copying themselves rather than continuing to explore and develop new ideas in their work. They are motivated in part by, and succumb to, the temptation of the massive rewards that may be obtained for their work in the market. However, these rewards may be short-lived if the artist fails to understand what it is that is driving their sales. Failure to understand consumers and their needs and motivations is the kiss of death for a brand. A brand exists only to uniquely meet consumer needs. If it becomes ubiquitous it loses its uniqueness.

The current state of this global market suggests that the transition of contemporary art from meaningful engagement with the world around us to fungible asset is almost complete. For many of us in the art world, this is a deeply depressing thought.



1. This concept was first developed by the author in an essay about the Gulf Art Fair, ‘First Steps’, published in Asian Art News, vol. 17, no. 3, May/June 2007, pp 84–89. The current essay draws on and develops some of the ideas first raised in that essay.
 

Imprint

Author

Jonathan THOMSON

Topic
Essays
Date
Sat, 1 Dec 2007