According to Howard (2009), the art market is a physical or figurative venue in which art works can be bought and sold; to exist, the art market requires the work of art, a seller, a buyer, and/or an agent. Historically, many artwork transactions took place outside the art market, involving an artist (or craftsman) and a patron (an individual or an institution, e.g. the Roman Catholic Church in the European Middle Ages). Nowadays, the art market is an institutionalized commercial sector with a clear structure dealing with the purchases and sales of works of art. The structure of the art market is predetermined by the assumption that every work of art has its own “source market”, and it may be traded locally, regionally, and internationally. Following the account of Robertson (2005), the present-day art market items are usually classified as junk (low unit with a negative investment value), cutting-edge (legacy of the 19th-century Parisian dealer revolution), and alternative (a derivative of the Academy system); this classification determines their value in the market.
It is also necessary to note that the art market encompasses institutional and commercial ‘players’ – the wide classification thereof includes galleries, private dealers, museums, and auction houses. The institutional bodies are the supranational authorities such as UNESCO and Interpol (Robertson, 2005). The latter category also includes national-level institutions such as ministries of culture, cultural promotion agencies, customs and excise, public museums and galleries, art schools, etc. The private entities operating in the art market include “private/foundation collections, galleries and auction houses, specialist art magazines and dealers’ societies” (Robertson, 2005, p. 19). These market players have become common market players present in virtually every state and every major city, contributing to the development of the cultural promotion, and developing the commercial sector of art trade.
The commercial art market is specific in many aspects; the most significant aspect of its functioning, as McNulty (2006) admitted, is the assignment of monetary value to a work of art. Compared to the relatively low expenditure of raw materials on the creation of a painting, the price for a classical masterpiece of an Old Master can reach more than one hundred million dollars. Hence, the prime challenge of the art market is to determine the price for each particular artwork; to do so, the evaluator has to keep in mind the unique characteristics and circumstances surrounding a work of art. They include the popularity of the subject work’s style (the value of Orientalism works in the 19th century shifted to the appreciation of Impressionist and Post-Impressionist works in the 20th century, thus affecting the price of artworks belonging to these trends), the artist’s reputation (the fame of the artist is the key factor affecting the price of the artwork), rarity, condition, and provenance (McNulty, 2006).
Another specificity of the art market is in understanding the motives driving the buyers to purchase tremendously expensive art items. Research evidence indicates that there are several motives buyers display; first, they may be motivated by the work of art itself. Some works of art may seem exceptionally pleasing aesthetically for certain buyers, or may present exceptional artistic value for them because of their interest in replenishing their artwork collection in a certain genre, or of a certain artist (Towse, 2011). Second, many buyers acquire artworks for financial reasons, knowing about their value, and investing money in them as a measure of saving their funds from inflation – the financial motive is the primary focus of the cultural economies. Finally, art works are sometimes acquired for the social reasons, such as acquiring a certain status, adding to one’s prestige and reputation, etc. (Towse, 2011). However, in practice, these three distinct types of motives may be presented in the art-buying activity simultaneously, being mixed individually.
Though the realistic profitability of investment in art has been economically proven as irrational and virtually non-accomplishable, in both short-term and long-term prospects, the art market still exists, and even outperforms some other commercial sectors. Therefore, in the modern world, artists face a challenge of not only creating art works, but also of managing to promote them, and make themselves known. Richard E. Caves produced a helpful, insightful book titled Creative Industries: Contracts Between Art and Commerce in which he formulated the key recommendations for artists to succeed in the modern art market: building a continuous dialogue with the art world; sustaining a continuous and extensive contact with other young artists; establishing contacts with dealers, collectors, and writers about art; taking proper care about public exposure for art works through contacts with a well-established gallery, etc. (Caves, 2000). As one can see, the art market has not changed much starting from its early roots in the Middle Ages; the roles the artists play, and the newly emerging distribution and popularization channels unavoidably reshape the 21st-century art market profile, and define its future. Nevertheless, the understanding of the art market’s future is impossible without comprehending its past.
History of the Art Market
Though art has existed for many millennia, since the times of the first prehistoric tribes’ primitive artwork creation, the formal emergence of the art market is a much more recent development. Its creation, as claimed by Howard (2009) was predetermined by the emergence of collectors, the production of movable artworks, and the development of mechanisms regulating the sales of artworks, either directly by their creators through the art fairs, markets, and exhibitions, or with the help of dealers and auctioneers. As De Marchi and Van Miegroet (2006) indicated in their study, the germinal stage of art market development can be traced back to the 15th century when the Western markets from paintings emerged and evolved. The authors indicated that the first markets originated from the commission market for one-off, religious paintings in Florence and Bruges in the second half of the 15th century. However, the demand soon increased, with foreign merchants requiring oil paintings (which provided Bruges with a market advantage), and easel paintings on thin linen, as well as oil on panel, increasingly used as cheaper substitutes for tapestries (De Marchi & Van Miegroet, 2006).
The market demand resulted in the diversification of supply, with differently trained artists providing a set of new products; nevertheless, the abundance of art works of varying quality, and significant cost reduction deriving from excessive supply brought about the latent demand among the representatives of lower social classes. The products of Florence and Bruges artists were exported to many countries, though they in fact represented only cheap, low-quality imitations of unique commissions. The north of Europe exhibited great demand for paintings at the dawn of the Western art market emergence; the sale and resale markets emerged, with recycled paintings being sold by second-hand clothes dealers. As a result of these historical processes including “nexus, cost-reduction and novel sorts of paintings, mass retail, then resale markets” contributed to the emergence of the mass art market across Europe that required regulation mechanisms (De Marchi & Van Miegroet, 2006). In the process of art market’s expansion and evolution, the public sales and auctions emerged as instruments of art works’ distribution control (De Marchi & Van Miegroet, 2006).
Art and culture have historically been closely related with the economic thought; though in the 17th century, spending money on art was viewed suspiciously, and regarded as the extravagant waste of money afforded by aristocracy, the 18th-century economic thought was already much more favorable regarding collecting artworks (Ginsburgh & Throsby, 2006). The first economists to see the close correlation between the prices for paintings and the demand in the market were Mandeville, Galiani, Hume, Turgot, and Smith. However, the art market has historically depended not only on the views of potential consumers, but also on a much wider and larger scope of circumstances that shaped the overall commercial climate.
London’s rise as the art center in the 17th and 18th centuries can be explained by the increasing popularity of art publishing and print selling promoted by William Hogarth; the adoption of the Engraving Copyright Act in 1735 (also referred to as the Hogarth Act) is considered a monumental milestone in the maintenance of artistic quality within the art market in London (Howard, 2009). In the late 17th century, the Office of Outroper previously holding the monopoly on sales within London gradually lost its power, and the new technique of auctioneering became increasingly popular. The famous Christie auction house was founded by James Christie in 1766, and by the end of the 18th century, Bonham’s and Phillips auction houses were also founded in London to promote the development of the art market in the state (Howard, 2009).
As the Getty Research Institute (2013) specialists indicated, the end of the 18th century witnessed fundamental redistribution of art resulting from the French Revolution, Napoleonic Wars, occupation of Italy, Spain, and the Low Countries, Papacy’s loss of power impairing the enforcement of art export laws in the Papal States, as well as other historical conditions. Following these events, a large number of monumental paintings, and sometimes entire collections, were dispersed through auctions and private treaty sale after being taken from European monasteries, churches, and private palaces (The Getty Research Institute, 2013). London emerged as the new hub of the international art trade, replacing Paris in this role, and strengthening its positions gained in the 17th and 18th centuries.
In the 19th century, the art market grew and diversified. According to Howard (2009), the taste for Orientalism emerged in the art collectors’ circles in Paris. The prominent artistic boom was observed in England during the Victorian age; art was highly valued and intensely promoted. Moreover, a significant issue in the 19th-century art market was the emergence of a dealer – a person working to unite sellers and buyers of art works for a commission. The feasible rise of the prices for art works is attributed to the entry of dealers to the market. the auction market also grew in the middle of the 19th century, mainly due to the presence of some rich and competitive collectors such as Baron James de Rothschild and Richard Seymour-Conway, etc. (Howard, 2009).
The 20th-century art market, as Genoccio (2012) claimed, was intensely focused on the Contemporary art and the modern European and American art. Experts indicated that the first oil crisis of the 1970s, and the market crash of 1929 did not affect the art market much, proving its high resilience to the external economic pressures. However, it is impossible to say that the art market has always been completely immune to the tensions in the global economic landscape. There has been a change in the value of various artists’ works and artistic periods, with the Impressionist and Post-Impressionist sectors losing their prior value, and the major shift towards appreciation of Contemporary art (American and European) after the 1990s’ crisis (McAndrew, 2010). The 2008 crisis put the Contemporary art under threat, shifting the prime speculative value towards the works of Old Masters.
Major Art Market Players
Throughout the history of art market development, the art market grew to be operated through the activities of galleries, private dealers, museums, and auction houses apart from the direct contacts of artists with their customers. An auction house is one of the oldest forms of art selling dating back to the times of the Ancient Babylon (McNutty, 2006). The intense interest of art market participants to the auction sales was observed in the 20th century, with the sensational purchase of Rembrandt’s Aristotle Contemplating the Bust of Homer for $2,300,000 by the Metropolitan Museum of Art in New York, and the sale of one-fifth of Robert Scull’s collection at Parke Bernet in 1973. Since those monumental events in the auction sales, the inclusion of many contemporary artists has also been initiated, and nowadays, the major contemporary auction sales attract much media attention and art press, representing the most vigorous art market activity (McNulty, 2006). The auctioneers usually receive commissions from both the seller and the buyer of an action item; hence, they are personally interested in selling the art works. At present, there are two most influential and most long-standing auction houses – Christie’s (now French-owned) and Sotheby’s (now American-owned) (Towse, 2011).
Another vast category of art market participants is that of art dealers. The art dealers act as mediators between the supply and demand on the art market; they are rarely represented b large companies, and are usually limited to small-scale enterprises employing few people. The dealers’ market is characterized by intense competition, though some participants are engaged in the monopolistic competition by representing some artists on an exclusive basis, especially in specific, limited geographical locations (Towse, 2011). As McAndrew (2011) informed, “knowledge and expertise are key for competitive advantage and successful art dealers require both specialist knowledge combined with business acumen” (p. 1).
At present, as research findings of the Confédération Internationale des Négociants en Oeuvres d’Art (Cinoa) indicate, the art market divide between dealers and auction houses has become equal, about 50/50. There are 400,000 registered dealers in the major global art markets, but only from 2% to 5% of top dealers possess 50% of global sales’ value (McAndrew, 2011). Moreover, a major structural change is observed in the dealers’ art market activity, with the majority closing their shops and dealing privately with their customers from their homes or offices. The possible reasons for such a shift may be explained by the high cost of maintaining the retail presence in the high-end business context (McAndrew, 2011).
Art galleries have also witnessed the major restructuring in terms of the art market revenue. Although the art gallery is still considered the traditional sales outlet for art works, recent research evidence implies that there is a major decline in the traditional retail shop front (McAndrew, 2011). This trend is also coupled with the growth in online sales, making galleries less important for dealers. Burns (2011) supported these findings by stating that the traditional gallery model is characterized as being in decline now, with fair-led and online business taking over as the main source of revenue in the contemporary art market.
The role of museums in the formation of the art market profile should also not be neglected. A number of large, influential museums were founded in Europe in the 19th century; they continue to exert major influence on the trends and patterns of the art market activities. The British Museum was founded in 1753, and was rebuilt and expanded in the 1820s, acquiring much of its contemporary value and significance. The Victoria and Albert Museum was founded in 1852, and presently offers a rich collection of medieval and Renaissance sculpture, decorative arts. In the USA, the most influential museums were established in the 20th century, and included the Museum of Modern Art, the Whitney Museum of American Art, and the Guggenheim Museum. Though the role of museums has traditionally been more educational than commercial, they are known to have occupied a significant place in the art market because of promoting a more scholarly understanding of, and attitude to, art (Howard, 2009).
Future of the Art Market
The art market has proved to be comparatively independent from the economic crises and tensions, which proves the universal value of art even as an economic asset, and an object of investment. The 21st century witnessed a stable position of the art market, which is in part explained by the economic boom related to the emerging-market economies. Hence, the overall global growth was reflected in the individual prosperity and spending power increase, which contributed to the expansion of the high-end art market sales (McAndrew, 2010). The 2008 crisis, as well as the economic tensions of the previous centuries, did not produce any substantial effect on the art market, though the only observable tendencies in the market nowadays include the rising prices for artworks, and the potential changes in the collectors’ tastes.
In addition to the larger economic forces shaping the art market in the 21st century, one should consider the introduction of technology and e-commerce into the profile of the modern art market activities. The advent of the Internet technology has largely contributed to the shift of a considerable amount of operations in the art market online; the galleries and museums have lost a portion of the significant influence on the market they used to possess in the pre-digital era. Majotra (2013), the Managing Director of the PicassoMio Galleries and the digital resource PicassoMio.com, hypothesized that in the near future, the physical auctions will generally disappear, giving way to the new technologies of online auction houses. Moreover, Majotra (2013) predicted that the Old Masters will experience the revival of popularity, and the pre-20th-century art will regain popularity and value.
Another unique characteristic of the art market of the 21st century is the growth of the popularity of art fairs; as Howard (2009) indicated, the art and antiques fairs are heavily attended in the recent years. Some of the most notable events were the Biennale des Antiquaires in Paris, the Frieze Art Fair and the Grosvenor House Art and Antiques Fair in London, the Armory Show in New York, etc. The benefits that fairs offer include the publicity for dealers, the high volume of visitors, the high level of confidence regarding the quality of items, and the opportunity to compare prices in a much more transparent and relaxed atmosphere as compared to the gallery sales settings (Howard, 2009).
The popularity of fairs is also supported by the comments of Burns (2011) who researched the web-based fairs’ creation in the art market. The author noted that some web-based ventures such as VIP art fair, Art.sy, and Paddle8 have taken the firm position in the international art world. Nevertheless, art dealers remain confident in the high-end products’ focus of the web-based art market participants; the cheaper segment of the market is expected to remain the priority of dealers (Burns, 2011).
Making forecasts for the future of the art market is thus indispensably connected with the consideration of the changing economic landscape. With the Eastern and emerging economies gaining power at the dawn of the 21st century, the art tastes of Eastern high-net-worth individuals have to be taken into account to project the monetary value ascribed to certain art sectors. Alongside with the global realignment of wealth in the world, and the intensifying diversity of powerful states, individuals, and sectors, there is much hope that the diversification of collecting tastes is a feasible perspective of the near future dominating over the preference of collecting art in a specific, narrow genre (McAndrew, 2010).
Disregarding the impact of the national and international economic forces, as well as the overarching influence of the online business on the art market development, one should agree that the key driving force of the art market in the 21st century, as well as any other market segment, is the consumer need and interest. Following the ideas of the Art Market Trends (2005) experts, the art market structure is evolving in response to the development of contemporary art and photography, with the share of living artists’ sales rising from 7.9% in 2000 to 17.6% in 2005. Prices for the living artists’ works rose within the mentioned five years by 12.5%, signaling the shift of interest of the high-paying art buyers form Old Masters’ classic works to the Post-Modern art created up to date.
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