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"