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The Art Market, Global Economy and Information Transparency

Article  in  Symphonya Emerging Issues in Management · June 2003

DOI: 10.4468/2003.2.07codignola · Source: RePEc

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The Art Market, Global Economy and

Information Transparency

Federica Codignola∗

1. Works of Art and Consumer Fruition

An analysis of the art market involves some basic difficulties linked, in

particular, to the uncertainty and asymmetry of sector information which often
1
proves to be incomplete and not shared by or accessible to one and all equally .
Art, within our society, tends to have a dual purpose, aesthetic and superaesthetic.
The economic role of art, in particular, is sustained by complex marketing
processes, which tend to modify the aims and conditions of artistic enterprise.
Presuming however that the fundamental requisite for an artistic product is its
value intended here as research, uniqueness and creativity, it might prove
interesting from a corporate-economic viewpoint to put forward a few
observations about aspects of its production and marketing. In actual fact, the
value of artwork may not be linked exclusively to the personality or commitment
of the artist, but also to the process of recognition of the usefulness of the artistic
product in its fulfilment of others. From a corporate-economic viewpoint
however there is always a minimum of uncertainty involved in the scientific
approach to this sector and in particular to the type of artist-cum-entrepreneur.
This, most probably, because of a number of difficulties involved in succeeding
in linking the figure of artist to that of producer-entrepreneur. On the other hand,
the opportunity to identify artistic productions as tending towards a (certain)
market, and hence aimed at realizing an exchange, would allow us to analyse the
artist as a business-entrepreneur for the purposes of the current interpretation of
business, in as far as he or she being an entity producing something for
2
exchange . The production of an artistic object has a specific intrinsic technical-
financial function within the ambit of which, the artist-cum-entrepreneur
responds in the face of a particular type of demand with his/her own product
range, using technical specifications for price formation, via particular
distribution channels and through specific meeting places for consumers and
3
producers. Putting forward the hypothesis of works of art as goods to be
exchanged (products) can easily be attempted through a broader specification of

∗
Lecturer in Management, University of Milan-Bicocca

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the product-work of art, determined above all thanks to the dualism of capital
goods-consumer goods. In actual fact, a work of art is not a capital good, as
capital or indirect goods are those in turn used for the production of direct
4
consumer goods . Therefore it would be natural to classify a work of art, with all
the consequent critical issues arising, as a consumer good with particular features,
distinguished by a value which tends to increase over time and an unlimited
duration. Notwithstanding criticism of this extreme tendency to pay excessive
attention to the financial issues and technicalities of art, it must then be observed
that many aspects of the artistic sector, amongst which the determination of the
sale price of a good, are not solely linked to cultural factors. The judgement put
forward here of a work of art as a consumer good allows us, among other things,
to introduce the idea of mass enjoyment of that good and of making art more
popular. Technological development, for instance, has made it possible to
perfectly mass-reproduce famous works of art: ones that are similar to the
original from an aesthetic viewpoint, but very different from a financial, material
and cultural point of view. Great interest in art has already been observed in the
past by large publishing groups, who, with tools such as video cassettes,
illustrated fact sheets and posters, introduced works of art into the field of
5
consumer goods in their own right . Subsequently the same result was achieved
and extended thanks to the Internet, which has been used by auction houses,
museums and private galleries. Likewise, exhibitions held in big cities (for
example the Venice Biennale, and specialist exhibitions in Rome, Milan and
Florence) draw hundreds of thousands of spectators-visitors towards culture, thus
6
contributing to the mass consumption, if only occasionally, of works of art . In
this sense then, a work of art is no longer a single unique good, but one of general
consumption, the enjoyment of which is allowed to throngs of people. Thus by
considering a work of art as a consumer good with its own features, it is, as such,
subject to classification. The typical criteria used for this subdivision would
appear to be identifiable in the date of execution (for instance of a painting); this
being a tool which permits an elementary distinction between contemporary,
modern and old works of art. The latter are typical of the vast antiques market,
which, to a great extent, is separate from that of contemporary art and is
characterized by different types of acquisition-distribution of the marketed
product, and different factors which influence final prices. Another element of
great importance for the purposes of clear identification and recognizability of the
asset is the specific artistic trend. This is most especially true of modern and old
works of art (suffice to think of the artist-school combination), whilst it is not
equally incisive for contemporary works where original and new positions (those
which do not fit into any precise tradition) may be indicated with a ‘new trend’
7
formula . In an everyday working context however, there are some rather generic
attempts to classify contemporary works, along the lines of abstract, informal,
figurative, etc. The presence of these distinctions could be justified with a very
simple reason: in the high level market a classification based on the artistic
attributes of the works has no sense, so the artist is identified with his/her product
and a distinction between works is linked directly to the artist’s name. The
market at the lower end of the scale is a different matter where the signature has
still not risen to being the dominant feature and where there are a large number of

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consumers with limited knowledge at whom only elementary classifications may

8
be aimed .

2. Art Market Specificity

The art market has a far-reaching base of fruition as art in itself is a kind of
consumption-investment, with a highly diversified product range due to the
multiple collection requirements within the demand market. Moreover, this
market appears to be highly flexible: indeed, supply and demand are structured
around a controllable group of collectors, investors and museums, whose interest
or disinterest are often determined by the economic climate distinguishing a
particular historical period. For instance, many people consider the art market to
be the mirror of the general economic trend and a thermometer of current and
9
evolutive trends . If we take paintings as an illustratory point of reference, the
first thing that becomes apparent when assessing the main characteristics of the
art market is the great heterogeneity of works present. Another typical
characteristic of the market under analysis is to be found in the anonymity of
many transactions; an anonymity which gives rise to the phenomenon of a
clandestine market, which actually exists outside the typical product distribution
circuit. If we then also accept the theory that a work of art, being a durable good,
is not subject to consumption deterioration and will potentially be the object of
10
several exchanges , then further distinctive features emerge. In the first place,
with reference to an individual artist and under the postulate of the
irreplaceability of his/her work with that of another artist, it may be affirmed that
from a production viewpoint we are faced with a limited supply market. This then
would lead us to consider a work of art as an asset, the price of which tends to
increase in the presence of a market (for example, the contemporary art market),
which would create fierce competition amongst potential buyers.

□ For instance, in the matter of the rarity of works of art - unlike a market such
as that for antiquities where the rarity of works is real and effective - in the
case of the contemporary art market this rarity is regulated by specific
strategies of the artistic system (centred on the choice of the most highly listed
11
artists and monopolistic or oligopolistic control of their production) .

Another peculiarity of this market is discernible in the personalization of its

operators. Producers are mainly individual firms and the marked personification
of the operators changes the perspective of some strategic issues that concern
every business. Generally speaking, it is the dealer who decides on the type of
communication, distribution and price, whilst the artist is responsible above all
for the quality of the product. As far as image-brand relationship is concerned,
the brand tends to be configured in the artist’s signature, whilst the distributor
essentially deals with brand awareness, managing its image qualitatively and its
12
renown quantitively. Last but not least, the art market is characterized by buyer
stratification, displaying all the traits of a hierarchy of levels and manners of
acquisition and consumption.
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2.1 Supply

If we observe the development process of a product-work of art, it becomes

apparent that the artist is not the only craftsman involved, but merely one of the
agents operating within the production process of this particular cultural offering,
with his/her role often being subordinate in actual fact to that of the dealers,
critics and financiers. From this viewpoint, one can then understand the
difference between the two roles distinguishing an artist’s business: first there is
the creative role, relating to the proposal of new ideas or new artistic values, and
secondly the production stage of the actual artworks, which are objects identified
as goods to be placed on the market. The second role is the one that comes closest
to actual production activity, to the identification of the artist as a producer and
business characterised not by a complex productive system, but one of an
elementary type (procurement, technical means, preparation, execution,
13
completion and sale) . An artist is however very much a single-handed
production system and this consequently determines the fact that addressing
energy to sales means subtracting it from production; so even in the most liberal
of productions the intervention of a broker would appear to be necessary, giving
rise to a split business; on the one hand production carried out by the artist, on the
other sales carried out by a dealer. An artist’s production determines his/her
renown and success (which is measured by his/her contractual power towards the
markets, the frequency and importance of exhibitions, etc.) On a more complex
level, however, an artist’s affirmation seems to be linked to his/her cultural
contribution. So we could conclude that an artist’s professional success depends
not on the immediate monetary value of his/her works but on the dialectic
relationship that the artist builds with the market system. Furthermore, from these
facts it is perhaps possible to even pinpoint different types of artistic careers,
distinguished by a variable intensity of contact with the market and fashion. One
thing which is solidly connected to an artist’s popularity is the concept of quality
of an artistic good, a concept which is without doubt difficult to determine within
the ambit of this particular productive activity. The idea of quality from the
viewpoint of supply may for instance concern the difference between an original
and a copy; from the point of view of demand quality is, however, very different
and takes on a much simpler significance. Quality is linked to the idea of
possessing, at a precise historical moment, the works of highly ranked and well-
appreciated artists. Thus the qualitative factor is identified in the value compared
directly against fashion and marketing phenomena over which, for instance, the
media and specialized critics have a great deal of influence. The critic’s role
might be considered to be that of a mediator between the artistic circle and
demand for the product. His/her task is in fact also an operational one: carrying
out a selective, organizational, promotional role, participating in the definition
and production of the works and thus influencing the concept of quality. A
demonstration of the critics’ strong impact on quality can be grasped by
analysing one of their typical fields of activity: publications. Reviews, essays,
monographs, all are determining factors in an artist’s success, and the quality of
his/her products are, however, often an expression solicited, requested or even
paid for by dealers. The issue of price determination in the art market is very

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complex. Generally negotiations between several parties for the same type of
product determine market price. With regard to goods which are not
indispensable, such as works of art, considering the great influence played by
specific variables of a very subjective nature, it would only be approximate to
find objective factors which influence prices, ‘unless we want to identify the price
with the value of a work of art, that is to say, the estimate or quotation with the
actual price. A mistaken idea as the estimate also aims at considering those
values which are in actual fact within the work itself and which only emerge with
14
time’ . Moreover, literature also agrees with this by advising of the presence of
some objective factors typical to each work, which have an effect on its price:
year of production, size, artistic trend and the technique employed in its
execution. These are, however, factors which contribute in a secondary way to
determining price, but which are incapable of determining it alone. Without
doubt, the most important factor – and one that therefore plays a big role in price
determination - is the artist’s renown. Indeed, ‘it is commonly stated that a
certain level of renown for the artist constitutes a guarantee for the consumer.
The greatest form of safeguard for the consumer though is when the dealer
guarantees the repurchase of the work sold at a certain price at a figure that will
15
not be lower’ . The term ‘renown’ applied to artists is to be taken in its broadest
sense, as it implies the judgement of value by the public, a concept which appears
to correspond to the corporate judgement of brand awareness in its qualitative-
16
quantitative dimensions of image and renown . This notion of ‘artist’s image’
could be distinguished for instance in the areas of perception such as
recognizability, familiarity, reputation, etc.

2.2 Demand

The most visible aspect of development in demand in the art market is its
quantitative expansion, contributed to greatly by the growing proliferation of
information, new technologies and – as a result - new means of communication,
all of which being phenomena typical of globalisation. Thanks to this potential,
we can even propose the idea of such a particular consumer good as the one in
this market. And finally, let us not forget the population increase and progressive
improvement in the financial conditions of potential users. The new tendencies in
the demand for artistic goods can, however, be identified above all in a higher-
level market, if referring to a preference for a certain type of product, in as much
as this is a more competent cultural sector. If we wish to illustrate some
significant steps in the development of demand from a qualitative viewpoint, we
should observe the consumer’s development by turning our attention to his/her
aptitude, attitude and behaviour. For the purchaser of works of art, aptitude would
appear to be linked to passion for art and cultural background, not to mention
having the financial means. Attitude on the other hand might relate to changing
tastes, loyalty to purchases, and ease of being influenced by outside factors.
Finally, behaviour might refer to frequency of purchase, destination of purchases,
and the amount of research and intention in the actual purchases made.
Generally speaking, buyers of works of art appear to constitute a fairly
heterogeneous public in many ways. Frequency of purchase is one aspect which

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allows us to single out an initial group of consumers: occasional buyers.

Destination of purchase, which presages the very motive for purchase, would on
the other hand appear to allow a delimitation of the most important theoretical
sectors of consumption, which can be identified in the following groupings:
collectors, speculators, brokers, and the final group: purchases destined for the
furnishings sector. A further sector in terms of destination is defined by collective
consumer groups (public, museums, authorities or associations, the church).
These subdivisions relating to the main user areas for a product-work of art,
cannot however be considered exhaustive, as they disregard some distinguishing
attributes, which otherwise emerge when we consider current cases or real sectors
of consumption. Thus the need arises for further future research, and this is the
starting point for a more in-depth analysis of the behaviour patterns and attitudes
of the demand group itself by, for example, combining the complex variables of
attitude and behaviour. From a financial viewpoint, collector objects in their
17
broadest sense are simply consumer goods , in as much as they are not tools to
produce other goods or services. It is however extremely difficult to classify art
works in the durable or non-durable consumer goods categories. According to
some theories they are not to be considered durables as they are goods subject to
18 19
obsolescence through use , whilst according to others they are durables as, in a
strict economic sense, they perform their function several times over and their
lifetime is prolonged for many years. They do definitely come into one particular
category: that of investment goods, where the investor accepts the risk linked to
the fluctuations in financial value. Investment goods characterized by two
different types of results: income originating from paying visits to private
collections of works of art (collecting), and the difference between purchase price
20
and resale price of the asset (speculation) . The two factors thus identified are
obviously at the origin of two distinct types of demand: fruition and speculation.
The type of demand for art for enjoyment purposes, linked to a decorative role
and having the characteristics of a demand for luxury goods, has recently
registered a trend in steep ascent, thanks to higher standards of well-being and
21
higher cultural levels . Collector demand (the elite part of the fruition demand
group) is attracted above all by a desire for knowledge and in-depth examination
of the world of art, with the aim of forming a collection representing the same.
Therefore this group will buy under any market conditions and appears to be the
demand group, even if qualitatively discerning, with the most solid and stable
motivation over time - the group upon which the market can count. The
determining factors of the fruition demand group appear to be mainly identifiable
in the achievement of a high level of wealth, which is also apparent in the
consumption of other types of basic goods (property, insurance policies, financial
wealth, etc.) and in the growth of a knowledge and culture of art. These
components of demand growth may be influenced by promotional activities
carried out by dealers, editors, and art critics - in other words art market operators
- who may also influence taste. The fruition demand group is thus also
determined by both the evolution of the art market structure, which multiplies and
expands its organizational levels (auctions, galleries, trade fairs, etc.) and by the
types of works, ranging from a local or domestic level to an international one.
The speculative demand group, on the other hand, receives its guarantee from the

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intrinsic value of the works for which the collectors’ market reliably expresses an
appraisal and an associated going rate. In fact the speculative demand group
typically tends to penetrate a market in expansion, exploiting the rising trend in
prices and accelerating their ascent. If it were to take over it could, however,
totally distort the mechanics of the market into which it has penetrated. In fact,
speculative demand might not only anticipate a given trend in fruition demand
and, in this event, reap the benefits from precocious intuition of future fruition
demand, but also create manipulated results, by detaching itself from the actual
market basis and its natural evolution linked to the trends in the variables which
determine non speculative demand. Then at the time of achieving the desired
return, there might not be a suitable demand for fruition, but only another
speculative demand group willing to extend the risk into the future. So the market
would be increasingly at risk, the bigger the quotas of speculative supply and
demand present. Any market can be solicited by speculative demand and
moreover, a market will be that much more vulnerable to such a form of demand
the more it deals in rare and scarce goods in respect to the actual demand for
fruition (market with excess demand). A market appears to be able to protect
itself from excess speculative demand when that same market no longer offers
any guarantee back-up, i.e. when there are slow downs or backward moves in
prices which invalidate speculator expectations. This sort of demand must
therefore take into account, and not on a short-term basis, the variables that
determine expansion of the demand for works of art for the purposes of fruition
(increase in income, growth in cultural levels, etc.) Finally, the fundamental
determining factors in speculative demand seem to be identifiable in the
performance of financial products and their return on investment, in the
availability of liquidity, and in the presence of market structures which aggregate
22
supply and demand, such as auction houses . If we observe the act of speculation
with reference to the current period more closely, it could be said that speculation
for a contemporary work of art (which still has no stable historic or artistic
critical positioning) should be short term in order not to be too much of a risk. A
purchase should be concluded while the trend in price is rising and the work
should be resold in proximity to the maximum forecast. In other words, it must be
resold before the market perceives that the price is too high: the rapidity of the
rise can be a sign that the peak is not too far off in time, and this will be followed
23
by a sudden fall . Therefore, we are faced with a ‘status’ lifecycle characterized
by a phase of very rapid growth followed by an equally rapid fall. Typical
speculative demand in the contemporary art sector is therefore short term, as it
tends thus to reduce the risk of lack of market growth, an indispensable premise
to selling on the rise and achieving expected returns. In conclusion, we could say
that collecting creates the market and collectors are the final recipients of the
market. Schematically, the market originates from collectors
(collecting/fruition/actual demand), it develops thanks to speculators (speculative
demand) and, finally, it accrues by turning to the help of the fruition demand
group. The only point in common between these demand groups, which are so
different to one another, is doubtless to be found in the vast financial funds
available. In fact, the financial aspect is by no means marginal, even for
collectors, if for no other reason than that the finding and collecting of objects has
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always required significant investment. Collectors always risk their own capital
and must know, down to the finest detail, how to administer the desired object.
The economics of art collections, on the other hand, involve various costs and
returns, which a collector must consider very carefully: a return linked to the
possibility of having people make paid visits to the collection has to be weighed
up against the cost of acquisition and costs for custody and maintenance. In fact
the costs associated with the services which a collection requires cannot be
overlooked: insurance services; restoration services; expertise services; leasing
services, etc. By examining the degree of influence exercised by the different
classes of potential customers on the level of prices for works of art by any given
artist, it is plausible to suppose that occasional buyers do not actually really
influence market price. This is both because of attenuation, generally speaking, in
specific interest for single works, and because of the lesser pulling power they
have on distributors. From this point of view therefore, a painting would appear
to be an asset with a given price, corresponding to the level fixed by the
distributing parties or estimated by the experts. Whereas, on the other hand,
investors seem to be able to influence final prices for works of art. However, this
is most likely an influence with an essentially temporary impact. For investors,
price is but a mere parameter of convenience to operate while price remains
below the estimate of the current or future value of the work in question.
Basically, an investor speculates on a function of temporal and spatial adaptation,
24
trusting in positive changes in the level or number of artist’s customers . Thus
the normal relationship between speculators and price is that of contributing to an
early increase in price, with speculators actually ‘harbingers’ of demand (demand
for fruition/collection purposes). Art lovers’ and collectors’ motives for purchase
can on the other hand determine a higher intensity of demand, given the high
specific interest that may become apparent with reference to even just one single
work of art. Therefore, in the absence of true competition in purchasing,
collectors tend to maintain the price of works of art in keeping with the estimated
value in terms of artistic validity. When, on the other hand, there is fierce
competition within another market segment, then the conditions are created for a
rapid rise in price, even beyond the intrinsic quality of the actual asset itself.

2.3 Distribution as the Active Agent between Supply and Demand

The choice on the part of an artist of a specific form of distribution for his/her
own works, as in any entrepreneurial system, concerns ‘the connection between
the business and the final outlet market and involves both the organization of the
sales activity (sales forces) and reliance on systems external to the business itself
25
(distribution network)’ . In the case of an artist, however, this will be a sale and
not a distribution process, in the sense of continuous and continued placement.
The various types of distribution, considered in their broadest sense, often
actually appear to be acquired through an almost casual and involuntary process,
linked to personal factors - the artist’s own social-cultural background, his/her
pre-existing acquaintances - rather than any real putting in place of any sort of
distribution policy. More specifically, the main choice of a distribution channel
appears to be irrelevant. Even when there is no obligatory condition at the outset,

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the artist might actually choose a broker in the first place and then it will be the
broker who finds any other subsequent forms of distribution. If anything, there
might be a problem for the artist in exceeding possible distribution capacity limits
when faced with his/her own growing renown, authority and success. In any case,
the forms of distribution to be used will be set up on the basis of the placement of
the artist’s work in consideration of spatial and temporal variables.
Looking more closely at the different types of art brokers (for example in the
sale of paintings) one difficulty immediately springs to light: there does not
actually appear to be a correct expression to globally refer to this group of
individuals. Therefore the preference is to talk of distribution structures, even if
the roles performed reach well beyond distribution alone. On the other hand,
these organizations define the market in as far as they strongly influence its
features. In this market, amongst other things, they perform the role both of seller
and buyer and they control almost the entire supply and price system. From a
summary analysis of the parties operating in art distribution we can identify at
least three main groups of players. The first group includes operators who take on
a restricted role, avoiding direct investments in works (of art) and restricting the
size of their permanent organization through which they carry out their business
activity. This sector also includes individuals who often deal in works of art as a
secondary line to other forms of business. In certain cases this avoids the need to
have a specific organization, for instance, when the main business is connected to
some form of artistic production (printing firms, picture framers, etc.) Otherwise
galleries of local interest are created which primarily rent their available space to
artists. Then there are also organizers of sales, who use the service in terms of
available space for exhibitions offered not only by the (art) galleries of local
interest, but also by associations or institutions which are occasionally willing to
welcome shows or other forms of points of sale. The second group of operators
are those who have a stable organization for systematic dealing in works of art,
which constitutes their main or exclusive business activity. The real art galleries
come into this category, as do the greater number of those individuals who are
currently defined as art dealers. There is also a third group which includes the
auction houses; where risk is limited to the operating costs of a permanent
organization and to performing consultancy, advertising and promotional
activities (with exhibitions open to the public, the drawing up of announcements
and notices or the compilation of catalogues), as well as sales in the strict sense
of the word. The great difference between these last two groups consists in the
fact that the auction houses essentially take on the role of sales agents for their
own suppliers, whilst the dealers also assume the role of purchasing agents. An
examination of the parties present in the distribution (system) underlines the fact
that their most important feature is that they are sector based. In actual fact, it is
possible to identify different categories within the very same form of distribution,
each one with their own demand group: which means that each group of
distributors has its own policy. Finally, one very last category of sellers can
perhaps be identified, comprising the collectors themselves. An individual
collector actually has little relevance compared to the total traded volume, but the
category of collectors considered as a whole, combines to create a large slice of
this market and related functions. The sales organizations for art products seem to

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be characterised by the fulfilling of specific functions which can be defined in

three main areas: the primary roles which concern real sales activity (finding
works of art, adaptation to the requirements of demand groups and ‘adding-value’
to works through the use of advertising and communications designed to raise
awareness, recognition and familiarity; auxiliary and complimentary roles with
external parties with whom supply or sales relationships are developed (support,
consultancy, financing); and, finally, business development (number of artists
dealt with, geographical spread of markets and presence in complementary
sectors). Some peculiarities of sales relating to this market relate to: direct sales,
mail order sales, and ‘door to door’ sales. Direct sales seem to be the most
widespread, meaning sales in art galleries or, in any case, which involve a
personal relationship between the seller and the customer. This form of sale
seems to be particularly congenial to this sector, as it may be perfected over a
time span that is usually longer than other types of sale (such as auctions),
allowing an immediate and direct valuation of the quality of works of art
(contrary to what happens, for instance, in case of sales by mail order or
television). Mail order sales in the art market appear to be of interest above all to
sellers, as they allow potential customers, who are far away distance-wise, yet
financially sound and with little time available, to be contacted at limited cost. A
delicate situation might arise with this type of sale however, in the event of
requests focussing on a single advertised work of art. It is for this reason, it would
seem, that there is often a tendency to advertise works of art which, due to the
particular subject matter or high value will not easily attract many requests; or
otherwise works which appear easily interchangeable, giving the catalogue upon
request a greater completeness in the number and list of works. As far as ‘door to
door’ sales are concerned, on the other hand, it has been observed that these exist
thanks to a specific demand segment which ‘due to geographical location and
cultural attitude is not inclined to go to art galleries or even less to auction
houses, where they would have to deal with an environment with which they are
26
not familiar in order to buy an unusual product.’
A more recent sales technique, deriving directly from the auction houses’
structure, is identifiable in television sales. This is a type of auction carried out by
private independent stations and carried out at a slower rhythm than a direct
auction (incoming telephone calls have to be followed by other confirmatory ones
from the auction organization). This form of sale is however clearly linked to the
popularity of the broadcasting station, the validity of the works and careful
verification of the authenticity and legitimacy of the origins of the works of art on
offer.
Last but not least, let us mention the most recent form of sales, in absolute,
which arose thanks to Internet technology and has turned this and many other
aspects of the art market upside down. With the arrival of online auctioning, the
traditional auction houses seem to have come up against some pretty fierce
competition from the online auction houses. Internet has increased the number of
participants (buyers and dealers), the number of art works for sale, the total
number of sales, changing somewhat radically the habits and rules of sale at
traditional auctions. As far as product policy is concerned, the marketing centres
for works of art seem essentially to develop the choice of products-artists to be

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promoted. As such, the distribution ‘core’ tends to be distinguished on the

grounds of the renown of the artists marketed, the degree of specialisation (i.e.
the breadth of the range dealt with in terms of artistic trends) and the multiplicity
of the artists for each individual artistic trend.
It is useful to note that the greater the renown of the artists, the lesser the
distribution capacity and strength in relation to the various policies adopted. For
this reason and, above all, to guarantee the operator the availability of new
products or the premises to be able to enlarge his/her own business, it does not
appear unusual to launch new artists, who are as yet unknown or famous only in
lesser markets, alongside the marketing of already famous artists. Among those
factors dependant on the artist which most influence the distribution of works of
art, are the production rate, the range of works available, the trend in
development and evolution, and any absorption limits of the market itself. In
actual fact, the greater an artist’s turnout appears to be, the greater the
requirement for continuity of distribution of his/her work and for a widespread
presence in the different markets. The production range of an artist may,
however, indicate the opportunity to reach different markets at different times.
With regard to any indication as to an approaching artistic development on the
part of the artist, this could induce a slow down in the rhythm of distribution or
an acceleration, in line with the effect of adherence to current market demand and
requirements, and the necessity for a market or price change. Finally, market
absorption limits may impact on proliferation or diffusion policies, stimulating
the artist to reduce or increase production intensity or make some form of change
to qualitative features. Basically, activities performed by a merchant broker are
qualified not only through the size and image of the organization, but also its
ability to pursue a correct distribution policy and not just the simple sale of one
artist’s work.

3. The Issue of Art Market Information

Precise data on world art market dimensions are not available. This is due to
the uniqueness of the goods, and also because art brokers constitute an
excessively fragmented sector, with a great variety and number of brokers, many
of whom actually work informally. The extremely fragmentary nature of the art
market is underlined by a widespread reticence on the part of art dealers. In other
words, the confines of the art market extend from small local markets to
renowned world-class auction houses. Nobody, as yet, has put forward a precise
estimate as to the overall turnover of the global art market; in its current state, in
fact, the reliability of estimates, including those relating to minor geographical
areas, would be debatable. The trustworthy circulation of information in these
markets could lead to greater transparency and clarity for the various dealers, but
it could also be seen as a threat for those who, for various reasons carry on
brokerage activities trying to benefit from the lack of transparency. The
difficulties met during analysis of this type of market are diverse, according to
the particular market segment under consideration. In actual fact, the lack of valid
and consistent information channels, or transparent systems to circulate

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information about the market structure, its mechanisms and the chronological
development in the estimated value of artistic goods, increases the degree of
casualness in price formation and consequently the risk of any investment. This
drives a number of parties who do not possess the necessary economic-cultural
know-how away from the market, despite the fact that they could actually be
potential end users of the artistic goods. Nevertheless, it is also very probable that
a systematic revelation of the sale prices for works of art is at present only
possible with reference to the transactions which take place in auctions, which in
any case only cover a part of the overall market transactions (even if in different
proportions, in the different segments). Contrary to the auction houses which
publish or make available online a list of the pieces auctioned and a catalogue of
the works put up for auction with the relevant price estimates (as well as a whole
series of other information), art dealers and antique dealers generally do not have
any system for recording and circulating information linked to their business
activities. Presumably, these dealers judge it indiscreet to release information
aimed at indicating sales figures linked to trading activities and consider it
counterproductive to provide sales prices or estimates of value. In the majority of
cases it is even difficult to obtain appropriate information about their turnover. As
far as demand is concerned, besides the private collectors, a growing number of
businesses (amongst which several banking institutions) are investing
increasingly larger amounts in art works. The birth of art investment funds and
the multiplication of private collections bear witness to the growing interest in the
art market. Last but not least, even public organisations seem to have finally
understood the importance of art collections. As of late, museums and public art
galleries come forward more and more often as buyers at auctions. In the
structural complexity of the art market, the artist, scholar, broker, critic, auction
house and art gallery, collector, financial speculator, museum, cultural
establishment and public all interact together. On the other hand, brokers, art
dealers, antique dealers, auction houses, all act within the market in accordance
with very specific terms and the problems of retrieving financial data from the
markets or from the abovementioned parties are very diverse.

3.1 Information and the Role of Auction Houses

The activity of auction houses allows us to obtain a reliable and continuous

survey of the estimated values and auction prices of works of art, as well as
circulating other important financial data on the artistic products exchanged. An
important fact but one that practically cannot be surveyed, on the other hand, is
the market share held by dealers; antiques dealers and art dealers. However,
demand for art assets seems to be increasingly turning to auction sales, where
27
exchanges are more transparent . This attitude in the demand group demonstrates
that a purchase is increasingly based on objective variables that can be compared
against precise data, rather than the volatile and subjective opinions of dealers
and experts. Christie’s and Sotheby’s, on the grounds of their size, are the top two
auctions houses in the world and are often quoted as an example of oligopoly.
They share an unknown slice of a profitable global market and tend to imitate,
from time to time, the decisions and movements of their rival. Each one of these

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brand names has, in any case, a global network of relationships with different
players (buyers and sellers, advisors, experts, conservationists, collectors, etc.)
28
intervening strategically in the considered segment . Moreover market
globalisation seems to have inverted the strong relationship between dealers and
auction houses in favour of the latter. Indeed, many dealers are no longer able to
carry on business unless they accept to work with the auction houses under
conditions often bordering almost on employment. The strongest, however, seem
29
to opt for a global strategy, multiplying their branch offices abroad . The art
market is global and operates internationally through the activity of the biggest
auction houses in the most important venues in New York, London and Paris:
auction prices in these cities are a benchmark for worldwide prices in works of
30
art . One core feature of the auction houses consists in offering information
through the publication of an auction catalogue and estimated prices for the
works of art going under the hammer, as well as the circulation of auction price
lists which show the sale prices of the assets. Therefore, the catalogue represents
an indispensable communications tool, created for anyone wishing to take part in
an auction. As well as estimated prices, other unequivocal data is also available
(such as the presence of authentic signatures, the year of creation, the degree of
purity of precious stones, the material used in the making, etc.), and precise
information for instance on the position and importance that the work has within
the catalogue itself. Hence, an increasing interest in investments in artistic goods
has not been matched with greater attention to the circulation of financial data
concerning them. The market valuation for art objects is consequently almost
exclusively entrusted to the skill of the seller: investors, collectors and all the
other parties interested in buying art objects have only a few tools at their
disposal to help them decide autonomously. As far as economic research relating
to the art market is concerned, it seems to be focused above all on financial
theories relating to price formation for works of art, their profitability and
31
calculation of index numbers in the said market . On the other hand, specialised
studies into marketing issues linked to the art market have not been carried out.
The information tools currently available concern some specialised trade
magazines (in Italy, Il Giornale dell’Arte, Art and Auction, Flash Art, Art &
Dossier, etc.), the auction houses’ catalogues and price lists, some specialised
sector publications, through to the online databanks. Such information tools are
aimed at satisfying commercial requirements, and therefore consequently are
aimed at the production of financial data, a necessary premise for a scientific
approach to the art market.

3.2 Internet and the Art Market: a New Marketing Resource

Supply and demand for art products has recently begun to make use of the
Internet as a marketing tool, using it for example for communications with
customers, product and service sales, information circulation and the creation of
32
networks . Up to now, the number of dealers working with a virtual medium has
33
been relatively small . Collectors or art dealers for instance have always
requested specific conditions for the exhibition of their art works (lights, sounds,
structures, etc.) and often refused to accept the limitations set, at the time, by
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Internet technology. Recently however, technologies which were once

inaccessible have become available at a reasonable cost (digital photography,
34
software for websites, etc.) . In the beginning, therefore, the art market used the
Internet only for some necessary investments, and only later, thanks to
technological development, has this virtual tool become more accessible. ‘The
future is in the Internet ...’ said Klebibikov, ‘…it is a revolution. I think that 90%
35
of art business will move onto the Internet.’
Museums and galleries do, in actual fact, appear to be repositioning themselves
36
on the Internet whilst recent online initiatives, such as ArtNet, Art Mall,
Art.com, Artprice or Sothebys.com, are introducing important transformations
thanks to the information exchange on art that consumers are putting in place
through these portals. Virtual dealers are seeing visits to their online galleries
double every two months and, it seems that some receive more virtual visits than
37
physical ones in their real life galleries . Even in this market it should be possible
to unite dealers and buyers at the same instant; and the Internet could in fact bring
these individuals closer more efficiently. If this were so, an appropriate
knowledge of these groups would become imperative for all the dealers wishing
to market art through this tool. After a careful analysis of the segments belonging
to the art market, virtual sector professionals could introduce further optimisation
with a view, for example, to improving exchange between consumer and seller.
In this respect it might be interesting to create greater efficiency in the use of the
Internet tool in the art market. First and foremost, it is fundamental that the pages
load quickly, as the products, i.e. the works of art, are exhibited virtually in the
form of images, photographs or ‘jpg’ files. So online pictures should be able to
maintain the highest possible image quality whilst keeping the weight of the file
to a minimum.
Each party potentially active in the art market should moreover be able to
retrieve, through the auction house or gallery catalogue tool, the largest feasible
amount of information, and do it as fast as possible. The web sites of galleries,
dealers or auction houses could then be organized in such a way as to provide an
optimised rapid information search through a vast quantity of research criteria. A
dealer, for example, could search for a specific work of art on the basis of some
of the criteria provided by his/her client (colours, measurements, design, style,
artist, époque, geography, etc.). An efficient form of research of this type would
be of the greatest significance because of the resultant benefits both for the client
and the dealer.
Given that generally, works of art are unique pieces and not standardised,
demand is highly concentrated. So if an art dealer, a speculator or any other buyer
wished to purchase an art object he/she would be obliged to minimise sale time
so as not to risk losing the work of art. For this reason, the ease or difficulty with
which one can broker online becomes a critical factor. To this end, for instance,
buyers should have a wide variety of payment methods available to them, privacy
and safety in their transactions, and written guarantees with regard to delivery.
Finally, successful web sites are updated very frequently. A web site proposing
the marketing of works of art should also, as well as this, check the quality of the
information posted in terms of products offered, prices, orders and organizations.

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4. The Art Market from a Global Perspective

The great dynamism which characterises the context in which businesses move
nowadays also affects artistic enterprises and hence the artist-cum-entrepreneur.
The biggest changes relate to the environmental and competitive context, which
organizations must take into account at the time of defining their own strategic
38
path . Competitive analysis, preparatory in the choice of strategic options, allows
an investigation to be made into the different levels of competition. These may be
39
broken down into direct, indirect, extended ; the multi-dimensionality of which
would propose an interpretation, in the dynamic sense, of the important
phenomena for the life of the business. No less significant is the technological
variable. This represents the most unstable factor in the present state of affairs,
taking into account both the speed at which new technologies are developed, and
the intensity with which they spread, often even in fields of application which are
far removed from the original context. Therefore, information flow between
demand, supply and distribution, risks being asymmetrical. That is why we
decided here above to focus on the Internet, as it is a contributory cause to
globalisation and, at the same time, a tool for the development of information
exchange in the art market. With globalisation, the art market has recorded
considerable changes. The market has become internationalised up to the point of
becoming a worldwide market, leaving behind a juxtaposition of communicating
national markets. In relation to this, some phenomena seem particularly
significant. Demand has undergone a remarkable growth, probably due also to its
fragmentation and diversification. Alongside the figure of the collector, some
40
new players have come onto the scene . Consequently, the private sector
demand, like all the art market for that matter, has become globalised, causing
buyers and dealers to physically move on the basis of market morphology and the
cost of transactions. In recent times, therefore, the art market has no longer been
made up of relatively communicating national markets, and has become a
worldwide market. Every national artistic space has,, in fact, been inserted into a
global system of cultural and financial exchange. Circulation of individuals,
works of art and information, favours market interconnection. Information on the
listings of works of art in auctions is, thanks to the Internet, instantaneous and
planetary. The same is true for indexes and classifications relating to the artists
on the basis of the turnover achieved in auction sales, with interesting indications
about the state of the market and latest popular trends. Market globalisation has
probably been stimulated as well by the volatility of financial flows invested in
artistic assets. Market dealers, for example, move on the basis of regulations,
taxation and fiscal conditions in force in the various countries.

□ In the Swiss art market, the general purpose of a free port or free zone is to
authorize the purchase of an asset abroad, all without having to pay custom
duties or VAT. These zones are actually of crucial importance in this type of
market; and in fact Switzerland occupies a strategic position at international
41
level .

Even multinational auction houses organize their auctions in most metropolitan

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areas and every week a new art fair is opened somewhere in the world. The
scattering of points of sale does not however exclude a high degree of market
concentration. The American market alone represents almost half the global
market and that of the United Kingdom a quarter. Dominant markets include New
York, London and Paris.

□ The art market has the double characteristic of being highly internationalised
and concentrated only in some worldwide cities, in line with a network similar
to that of the financial markets due to the interdependency of these two
universes. In actual fact this spatial configuration plays a greater functional
role in establishing interdependency relations between the economic, cultural
and political players, as in the speed of gathering and circulation data
42
indispensable for decisions to be taken .

In order to resist the auction houses’ attempts at supremacy, it seems sector

43
professionals use international fairs and exhibitions . The large contemporary art
fairs, set up at the end of the sixties, could in fact constitute one of the main tools
for the international spread of art. Organized all year round between Madrid,
London, New York, Chicago, Basil, Paris, Miami, etc. these fairs represent real
places for dealers and collectors alike to compare, exchange, etc. The most
important contemporary art fair is in Basil, Switzerland, and it appears to have
contributed to the commercial rise of some movements and artists presented at
44
the main exhibitions such as Venice Biennale and Kassel Documenta . These
fairs can also play an important role in the secondary market: sales are made from
one stand to the other and comparable works of the same artist may be found
proposed at different prices. Collectors and those responsible for institutions thus
feel they are able to buy both quality and price. Each one of these fairs is
therefore a place of intense competition between market operators, but at the
same time it constitutes a welcome structure for art dealers, also giving them a
vision of the global range of artwork available. Alongside the phenomenon of
international fairs, art market globalisation has been widely favoured by online
auctions. At the end of the nineties, the success of online auctions was immense,
with both public and investors. Alongside non-specific locations, specialized sites
also multiplied, including those focused solely on the sale of art objects, antiques
and collector’s items. By uniting with some of the auction houses with ‘pedigree’
pasts, specialized brand names in ecommerce, have given greater credibility to
their own sales of art objects and collectors items. Doing so, the Ebay.com brand
name, a leader in the emerging online private-to-private sales market, bought the
brand name Butterfield & Butterfield, the third-largest American auction house.
Having made investments to obtain art goods of high quality and managing to
build a brand name recognized worldwide and in art markets, Ebay.com was thus
able to open the Great Collections section of its web site, a section in which art
objects originally from professional art dealers or auction houses are regularly put
up for auction. So the auction houses appear to have sought, through online sales,
to enlarge potential demand both geographically and socially, reduce internal
costs by diversifying commercial circuits and loyalize a customer base of dealers.
Whilst Christie’s auction house has been prudent in its approach to the Internet,

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in 1999 - and with a considerable investment - Sotheby’s launched an audacious

online sales policy. However it seems to be paying the price for this: since May
2003 the brand has closed its online sales business on its own Internet site,
passing the task on to Ebay.com - the number one online sales site worldwide -
where it has been hosted now for over a year. In the present state of the art
market, however, it appears that sales growth on the Internet above all relates to
45
medium or low quality goods or multiple objects . Moreover, dealers insist on
the absence of any real and proper selection of the objects put forward for sale
and on insufficient guarantees in relation to their authenticity and financial
46
value . It is also likewise important to observe the globalisation of the artistic
scene, which seems to follow in the steps of market place globalisation. In fact,
during the nineties, a multicultural extension of the supply was apparent. Artistic
movements from Central and Eastern Europe, Latin America, Africa, Australia
and the far Eastern countries were all exported and became famous. A Chinese
presence dominated the Venice Biennale in 1999; on June 24, 2000, Sotheby’s
organized the first public sale exclusively for contemporary African art, thus
contributing to creating a real trend as a result (suffice to think of the itinerant
exhibition to all major European capitals entitled ‘Africa remix’ that year, and the
recent creation of specialized magazines, etc.). In connection, an institutional
network dedicated to present-day works of art has been developed. In actual fact,
worldwide over the last three decades, some of the museums that best represent
architectural masterpieces of the twentieth century have been created in San
Francisco, Los Angeles, Santa Monica, Barcelona, Balboa and London. The
Guggenheim Foundation for example, seems to be going ahead in the
development of a brand strategy through the umpteenth museum project
conceived, in this case in partnership with the municipality of Rio de Janeiro. The
phenomenon of biennales has also increased over the last ten years or so, and as a
result there are currently about thirty of them, while even some important shows
organized in areas once considered outlying fringe areas seem to be growing in
importance. Exhibitions dedicated to global contemporary art, that is integrating
the artistic productions of many different cultures, are also held more and more
frequently. These events and new collaborative dynamics among artists of
different origins have led to the creation of international networks constituting
47
real international artistic breeding grounds . On the whole, globalisation of the
art market appears to have favoured an increase in supply and its revitalization,
too. From the viewpoint of globalisation, and especially in developed societies,
the organization and circulation of information have, however, been put forward
as new conditions for effective market operations. The importance of this
information, due to the size of the art market, and the choice of how to organize
production and distribution, could therefore stimulate a debate on the
organization of the art market, in a move both towards a truly global dimension,
and also towards greater effectiveness.

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Notes
1
On this matter please refer to: R.B Coffman, ‘Art Investment and Asymmetrical Information’, in
Journal of Cultural Economics, 15, 2, 1991; B.S. Frey e R. Eichenberger, ‘On the Rate of Return in
the Art Market: Survey and Evaluation’, in European Economic Review, 39, 1995.
2
Cfr. G. M. Golinelli, L’approccio sistemico al governo dell’impresa, Cedam, Padova, 2002; M.
Gatti, Approccio Sistemico e Governo dell’Impresa, Centro Studi di Tecniche Aziendali, Università
degli Studi di Salerno, Salerno, 1999; Gastone Ceccanti, Gli scambi d'impresa, Colombo Cursi, Pisa,
1962.
3
It was decided to use the term ‘work of art’ with reference to the distinction made by Tamburini,
so that by this term reference is made exclusively to the objects belonging to the visual/figurative arts:
‘…speaking of markets for artistic assets, the objects of same could be defined, similarly to that done
for example for industrial goods, as the product of an artistic activity, but this would not help, as in
this case a consolidated definition to which to refer to does not come to our aid, as it does in industry’.
In actual fact ‘…there are impressionistic recalls to a vast and open debate on the subject, which can
only strengthen the idea of the practical need to turn to a definition of what can be included under the
expression ‘art markets’ and therefore ‘works of art’. Conventionally, the artistic sector can be divided
into performing arts and visual arts; this latter category in turn can then be split into historical-cultural
assets – the existing stock – (cultural heritage) and fine arts which can be translated into everything
else’. The art markets refer to partitions of these latter two categories and they are markets in the sense
that there is an exchange of goods commonly deemed ‘art’, whether these be derived from the cultural
heritage (artistic stock) or obtained as products year by year’. See Gualtiero Tamburini, in: a cura di
Guido Candela e Monica Benini, Produzione e circolazione dell’informazione nel mercato dell’arte,
Clueb, Bologna 1997, pp.15-17.
4
Cfr. S. M. Brondoni, Politiche di mercato dei beni industriali, Giuffrè, Milano, 1983; J.J.Lambin,
Marketing strategico e operativo, McGraw-Hill Italia, Milano, 2000; P. Onida, Economia d’azienda,
Utet, Torino, 1965.
5
Cfr. A. Raspi, Arte e mercato. Aspetti del mercato dell’arte contemporanea. Il caso del quadro,
Artemide, Roma, 1997.
6
Exhibitions are quoted here as they are containers for these goods and optimum tools for their
distribution.
7
v. A. Raspi, Arte e mercato. Aspetti del mercato dell’arte contemporanea. Il caso del quadro, op.
cit., pg.17.
8
Cfr. C. Vallini, Il mercato dei quadri degli autori contemporanei: aspetti tecnico-economici,
Tipografia Coppini, Florence, 1983.
9
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Working Paper, Stern School of Business, NYU, 2001; E. J. Pesando, ‘Art as Investment: the Market
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Cfr. A. Raspi, Arte e mercato. Aspetti del mercato dell’arte contemporanea. Il caso del quadro,
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Cfr. H. Bellet, Le marché de l’art s’écroule demain à 18h30, Nil, Paris, 2001; G. Stern, ‘Making
Art Buying More Accessible’, in Link Up, May-June, 1996; S. Veneziani, ‘E’ finito anche il boom
dell’arte’, in Espansione, n.78, 2000.
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Cfr. S. Ricossa, (a cura di), I mercati dell’arte. Aspetti pubblici e privati, Allemanni, Turin, 1991.
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In proposito si vedano fra le pubblicazioni italiane: G. Mossetto e M. Vecco, ed., Economics of
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 © SYMPHONYA Emerging Issues in Management
www.unimib.it/symphonya

‘Marketing in Hypermedia Computer-Mediated Environments: Conceptual Foundations’, in Journal of

Marketing, July, n.60, 1996; D. Plotnikoff, Buying Fine Art on the Web Is a Work in the Making,
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Cfr. R. Vadon, ‘Strengthening Cultural Links’, op. cit.
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dell’internazionalizzazione delle pmi, Franco Angeli, Milan, 2003; C. Pepe, ‘Connotati organizzativi
dell’impresa per il mercato globale’, in Sinergie, n.60, CUEIM, Padua, 2003.
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Cfr. M. Porter, Competitive Advantage, The Free Press, New York, 1982.
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Cfr. A. Quemin, « La dimension territoriale de l'art contemporain », in Pratiques, n°1, 2002.

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