On pricing the priceless: comments on the economics of the visual art market

How are the prices set in the art market? Is it mostly based on pleasure and imagination? What are the returns on investments in art? Which are the differences between the determinants of stock market prices and art prices?

Defining arts in an economic theory remains a tuff challenge, although lot‘s of theories are made already. The art market is characterized by a hierarchy of submarkets, there are three different markets. At the primary market operate more sellers than buyers. The artist tries to sell his art by himself. Once he is able to sell a piece of his art in the primary market, the secondary market will be aware of his abilities and his artworks will be traded in the secondary market. An artist has to sell his works at the first stage before they will be traded in the secondary market. The secondary market, also called the dealer market, includes only a few wealthy buyers and famous artists. On top of the hierarchy there are only few auction houses, in New York, London, Paris… Art works who are traded in these houses get only sold occasionally. There are only a few bidders on every auction. A very important phenomena in the market is the informational inefficiencies, prices don’t present the quality and availability of the goods traded. The art houses are better informed than the dealers, so they take advantage of this by making bigger profits.


matthias van der schueren

Louis-André Gérard-Varet, "http://www.sciencedirect.com/science/article/pii/0014292194000577"

On the rate of return in the art market: Survey and evaluation

 What are the differences between an art- and a financial investments and what determines the rate of profits of these? How to measure the psychic benefits from investments in art and which are the determinants?

The rate of returns on investments in paintings is lower than for investments in financial assets, the psychic returns from owning and viewing the painting makes art more attractive. There is a huge importance of behavioural anomalies in the art deals. It has been shown that there are a lot of irrationalities such as January-, holiday-effects in the art markets which are very common. For a market to be efficient, it is more preferable to have only a few persons arbitraging. The fact that the market is only partly open, short selling is quiet impossible and there is a dependence of the art prices on political intervention makes the art market more likely to be efficient. Art can be seen as an investment good, but also as a consumption good. The most important determinants which make the difference between these two categories are risk, costs and taxes. The return from owning art is not only an expected price rise but also a psychic return. The psychic return can be measured by the willingness from the buyers to rent an art work, or the willingness to visit a museum where it is shown.

matthias van der schueren

Bruno S. Frey, Reiner Eichenberger, "http://www.sciencedirect.com/science/article/pii/0014292194000599"

Pricing as the Key to Attracting Students to the Performing Arts

Life is expensive, especially for students, who do not dispose of a permanent income and often have to make important expenses in the near future. This means that some expenses, for example those for expensive art performances, won’t be if they are considered unnecessary. But are high ticket prices really the main reason for students not attending an art event?

To investigate this topic a number of students, were surveyed, using a questionnaire that summarized their attitudes on attending art performances. Students who do not attend could give reasons for nonattendance and were asked if there is anything that would encourage them to attend. Non-attenders who gave money as main reason, were also asked if would be encouraged be ‘special price actions’. They were also questioned on what they spend on a night out and these expenses were compared with ticket prices for performing arts. The conclusion isn’t quite simple. On one hand, cost is often mentioned by surveyed, on the other hand, attending an art performance is quiet often cheaper than what they spend on a ‘regular’ night out, which means a lack of money is not a reason for nonattendance. The research eventually leads to the conclusion that preferences are the main criteria for attending performing arts.

Renaat Pieters

http://www.springerlink.com/content/v7j437387556h385/fulltext.pdf

Is art market behaviour predictable?

Is there a relation between art prices and the financial markets and, if there is, can we use this relation to predict these prices?

In the last few decades the financial markets have been spread all over the world and investing and speculating have become two important phenomena. As a consequence art is no longer just about collecting, it’s about making money.

Although art is a quiet subjective matter, the price of a certain piece results from a general agreement on the value, and is therefore quiet objective. This means econometrics, an objective, measurements based science can be used to investigate the link between art and financial markets. Using statistic methods, an index representing the behaviour of the art markets is compiled and compared with the behaviour of the financial markets in a certain period of time. Comparison shows us that art and financial markets have rough link, but also that lags occur. We also conclude that using financial evolutions to predict the art market is not a good idea.

We can say that the article shows us that evolutions in art markets are similar to those in financial markets, however, art is very personal and can be related to trends, etc.  and is therefore quiet unpredictable.

Renaat Pieters

http://www.sciencedirect.com/science/article/pii/0014292194000588

Support for artists

Astronomic prices go around for pieces of art, collectors can make a fortune by buying and selling art, but how about the artists? They have a relatively low income and often have to take a second job  to make a living.

Although artists tend to care more about the personal satisfaction they get from making art than about their income, a welfare state cannot allow these group of professionals to receive a much lower income than other professionals do. Apparently the poverty in arts seems to be structural.

Benefits and subsidies can inject more money into the arts, but this primarily leads to more artists and does not higher the income.

Other schemes were invented in an attempt to amortize the situation of the artists. In the Netherlands there were the ‘Beeldend kunstenaars regeling’ and the ‘wet inkomensvoorziening kunstenaars’.  Those resulted in a higher number of artists or  artists quitting second jobs to have more time to paint. So all of these schemes turned out to be ineffective.

In fact artists who cannot make a living by painting need to be seen as consumers who spend money on their  hobby instead of producers.

Ward Van der Gucht

Hans Abbing,2011, a handbook of cultural economics, p437-444.

http://repub.eur.nl/res/pub/802/TOWSE%20EBOOK_pages0449-0456.pdf

Beautiful asset: art as investment

For ages, collecting art for aesthetic pleasure, prestige and status have been an occupation of the ultra rich. While sporadically astronomic art sales prices come to our attention which suggest that art might be a very good investment.

Jianping Mei and Michael Moses are the first to systematically document investment returns in art: the Mei Moses Art Index. They created a database of repeated sales of art in America between 1925 and 2004. Therefore they used auction prices because of their reliability and public availability.

The return on investment of art between 1955 and 2004 was 10.0%, just slightly under the return data for the S&P 500 index. In addition, art outperformed bonds, treasury bills and gold.

On the downside art turned out to be more volatile than the S&P and of course paintings are less liquid than shares, although their liquidity is increasing due to the growing international market for art.

So art can be a gainful investment, but it’s not without risks.

Ward Van der Gucht

Jianping Mei, Ph. D., and Michael Moses, Ph.D., 2005, Beautiful Asset: Art as Investment. Published by the investment management consultants association.

http://www.imca.org/cms_images/file_2033.pdf

The artist and the brand

This paper is going to analyse the connections between the visual art, the image of consumption and the branding of these art pieces to beter understand the strategic significance of these practices.

To study these connections they use several successful artists. Andy Warhol, Barbara Kruger and Cindy Sherman are the Three artists used in this studie.

Andy Warhol:
Warhol is a Stunning example of an artist that serves as a brand. He has many contributions to branding and still 20 years after his death he remains a huge brand.

Barbara Kruger:
Kruger is a contemporary artist who focuses on the production and consumption of images. She is probably best known for her photomontage "I shop therefore I am". Her images have a critical interaction between consumption and indentity.

Cindy Sherman:
Sherman like kruger criticizes consumption and branding. Sherman utilizes the tools of branding, but her pictures show the dark side of branding and also she makes us more aware of the power the images have to construct or deconstruct our lives.

Marketing, branding and the consumer culture is often criticized by the artists. However research points out that they willingly or unwillingly make use of it to sell their products. They often are beter at branding their products then actual brand managers. These could still learn a lot from the artists.

Raphael Truyens

Does the sun shine on art prices?

This Paper examines how the variations in mood can influence the risks people take and how this changes the price for art in auctions. For this study they also take into acount the formed cartels.

To identify the changes in mood of the people they use the variation in hours of daily sunshine. For example they found that on the sunniest days, the price at auctions is higher for low priced painting compared to days with normal weather. Evidence also shows that only the upper end of prices distribution is affected by the cartel. The mood has an effect on the prices but is relatively weak and disappears the more the prices move up. well they actually can't say if it totally disappears but if it doesn't disappear it is overshadowed by the influence the cartels have on the prices for the upper echelon. They also determind that the seasons have some form of effect on the sales. The summer and winter see more painting being sold then the other seasons.

To get to this conclusion they use a serie of variables and data gatherd in London from 1990 to 2007. These variables consist of weather variables, the actual action data from each of those days,... .

Raphael Truyens