Business Economy - Essay Example

ECONOMIC THEORY AND CONTEMPORARY ART Using economic theory to explain why contemporary art prices are so high. The nature of artwork as economic goodIn the case of artwork, the criteria for determining price are not that readily evident, such that there would exist, at any one time, varying assessments of the true worth of a piece of art. Artworks have a high symbolic content, and their value exist in the sphere of individual persons’ predisposal to the symbolisms these artworks signify and their perception of it. In comparison, other goods and services have intrinsic value that is determined in terms of their inputs (for suppliers) and their utility (for consumers). For artworks, neither are the input costs (e.g. oil, watercolour, ink or canvass) significant in determining price, nor are artworks acquired for their utility. In the case of classical artworks of acknowledged masters, however, there is general agreement as to price because of their historical significance and the repeated past auctions at which they were valued. The market structure for contemporary art The contemporary art industry does not exclusively pertain to upper-end, high-priced works, at least more than any other industry dealing in products with a high intellectual property content. The two figures that follow show data on two major divisions in the contemporary artwork dealership industry. Figure 1 shows that affordable contemporary art actually comprises 73% of the market, whereas the so-called “prestige” market (with traditionally US$1 million price tags) is depicted in Figure 2 as correcting from its price bubble in 2003 to 2006, indicating that the gap between the two may be narrowing. Figure 1: Market share, affordable art Figure 2: The prestige market Source: Art Market Insight, 2009 The figures show the activity of art dealers, who are actually not the producers although they are the market creators. It is thus evident that the affordable art segment is closer to a pure competition, with many buyers and many sellers. While some observers will differ with this view and prefer to call this market an imperfect competition, citing the distinct differences among artworks, it is precisely the quality that each artwork is different from another that creates their “sameness”. Contemporary art cannot be reduced to exactly similar items, even for limited series, because in that case the artwork will no longer be art but mere commodity. Concerning the prestige market, however, the structure is more of an oligopoly with a very few and select dealers selling to the elite. This market is dominated by the likes of Christie’s and Sotheby’s which would be dealing works of highly renowned contemporary artists. It must be noted, however, that the market structures here are quite different from the economic concept of markets which deal with fungible or similar goods made by producers for their utility or commercial purposes, a notion that artists (the producers of the artwork) disdain. This is what causes the difficulty in casting contemporary art in an economic mold. However, focusing on art dealership lends itself more to economic concepts, and on which basis the foregoing distinctions in market structures are based. Contemporary art sales grew 107% to $1.34 billion in 2006 alone (Fishbein, 2008). However, the case of contemporary art remains dominated, it seems, by conjecture. The determinants of demand and supply do not apply readily to its price determination. For one, there are no competing products not substitutes or complements, because the contemporary piece of art is unique in its own identity. The supplier, in this case the artist, is so invested in his work in that every piece of artwork, the “disentanglement” of the artwork from its producer remains incomplete (Callon, 1998). Considerations in determining contemporary art prices Vethuis (2005) observed that for art, the concept of price is fluid, underspecified, and subject to redefinition in the course and practice of art dealers. Price levels convey different distinctions of social and cultural meaning among the class of the artist, the artwork, and the dealer or gallery, and are always viewed in context with other prices of art. Art prices are “read” by art connoisseurs and collectors as an indicator of artistic value. Pricing art is an indirect, oblique exercise, because, artists do not wish to refer to their artwork as products or items of commerce. Once an artwork has appeared in auction, it loses its emotional value and is degraded into “capital.” Art gallery owners, who price their wares, and the artists see their relationship as one of “equality, harmony & partnership.” Of the factors that determine price, the most important is the interplay of the reputation of the artist and the perception of the buyer. Prices are taken as a device for “ranking” the artists as well as the dealer. A high price may symbolize the extraordinary talent of an artist, but this may be relative since prices for artwork are not interpreted consistently to mean the same thing. Outside of the art circuit, the high prices may not be regarded as a tribute genius but as an indicator of fraud. Prices thought to be modest or cautious in one cuture may be interpreted as arrogance in another. Prices are also seen by artists as a source of self-esteem, which may cause them to demand prices which to the art dealer would seem unrealistic. In the art world, price levels will always convey different and complex meanings (Malik, 2008). In art, the pricing mechanism is not only an allocative (economic) but also a symbolic (cultural) system defined by behaviour codes particularly in lowering prices, because of their implications on the artist’s esteem (Velthuis, 2005). In summary, the factors in determining the price of contemporary artworks is the life or biography of the artist and the artwork, the degree to which it expresses identity, the cultural milieu in which it is being sold, and its conveyance of or appeal to the emotions, all of which serve to set a price for such works above and beyond their material costs. Thus contemporary art commands such high prices in the prestige market, but proves more reasonably priced in the bigger “affordable” market. [Word count = 1,000 excluding title and topic] References: Art Market Insight. Accessed 20 November 2009 from http://www.artmarketinsight.com/wallet/ami/artist/MTc0ODcyMDAyMjkyMzUxLQ==?l=en Callon, M (ed.) (1998) The Laws of the Markets. London: Blackwell Publishers, Earl, P E and Wakeley, T. (2005) Business Economics: A Contemporary Approach, McGraw-Hill. Fishbein, J (2008) Contemporary Art Tops the Auction Charts. BusinessWeek Online, 4/9/2008, p17-17. Keat, P G & Young, P K Y (2005) Principles of Managerial Economics, First Edition. Pearson Prentice-Hall. Malik, S (2008) Critique as alibi: moral differentiation in the art market. Journal of Visual Arts Practice, vol. 7 no. 3 pp. 283-295 Velthuis, O (2005) Talking Prices: Symbolic Meanings of Prices on the Market for Contemporary Art. Princeton University Press, Oxfordshire. Read More