THE CONTEMPORARY VISUAL ART MARKET AND FUTURE PERSPECTIVES

Similarly to other industries, the art market operates in a two-tier system, where the primary market is for first-time sales, while the secondary for resale.

The primary market is a place of discovery, where the work of art sees the light of day for the very first time. It is also a trial and error for artists themselves, allowing to explore if their work will match collectors’ criteria.

In this segment of market, artists can carry out direct sales, without an intermediary, usually by inviting collectors to their studios.

Also, living artists often sell their new works through commercial galleries. These establishments carry the responsibility of not only pricing single works, but setting the initial sales-price levels for the artists’ market, with the main goal of broadening the artist’s market.

Galleries with exclusivity agreements with artists act as the gatekeepers of the market, being artists’ official representatives, administrators, and promoters. For that reason, building strong professional or even contractual relationship with the artists is vital for gallerists. As a result, historically, gallerists emphasized the nature of exclusivity in their relationship with artists, meaning that all transactions had to go through just one gallery, not allowing the artist to sell their work independently and other galleries to showcase the artist’s works. Nevertheless, nowadays, due to the expansion of the global art market and the related growing demand for wider visibility, the boundaries of exclusive representation have started to blur. As opposed to traditional practices, new business models allow gallerists to enter into collaborations with other galleries in order to share the costs of promoting their artists in group shows.

 

  Infinity Mirrored Room ‘Let’s survive forever” 2017 by Yayoi Kusama. Installation view, David Zwirner New York in collaboration with Victoria Miro© 


As previously mentioned, a work that has already been sold at least once, upon resales makes its way onto the secondary market. In this respect, one of the unique features of the art market, unlike other markets, is the fact that the highest values are indeed achieved in this segment. According to the UBS Fine Art Market Report (2019), only 8% of the dealers reported working solely in the secondary market with the lowest median turnover of $ 5.1 million as opposed to 52% of dealers working on primary market only with the lowest median turnover of $ 500,000. This is largely due to lower information costs and risks faced by the buyer. Considering its inherent scarcity and durability, art has, in fact, the potential to appreciate, maintain or even increase its value over time.

Similarly to the primary market, in the secondary market sellers offer works of art for resale individually or through agents such as private dealers or galleries. There are, however, two additional rather active and prominent players, represented by auction houses and International Art Fairs. The latter are indeed preferred by many as Art Fairs often feature in the same place hundreds of international galleries, giving collectors an immediate overview of global market trends. Buying at public auctions, however, seems to be the winning channel for art purchases on the secondary market. The auction market has been on a steady rise for the past twenty years. The Art Basel Report (2019) confirms that sales at public auctions reached $ 29.1 billion in 2018, which illustrates a steady increase of 3% year-on-year. The growth is driven by the high-end of the market i.e. works priced over $ 10 million, with highest-priced lots in the Modern sector.

Another significant difference between the Primary and the Secondary Market is the number of artists that dealers tend to work with. Those in the secondary market on average sold works of 41 artists (2018), while for dealers in the primary market the number was twice as low (22 artists in 2018), according to Art Economics Report (2019).   

The business model currently in place is attractive for dealers, however, it is only available to a very few due to its high entry barriers. The art market, in fact, requires to be part of an exclusive network, which is often unavailable without a relevant background. Additionally, buyers often pay unreasonable premiums on top of the artwork’s market price.  

 

              Sotheby's auctioneer Henry Wyndham at the auctioneer's London salesroom in February 2016. Courtesy Tristan Fewings/Getty Images.

 

In addition to the traditional trading forms described above, due to the increasingly relevant role played by technology in the art sector, innovative trading models able to open the market to a new network of potential buyers and collectors are coming to life.

In this respect, a great example could be represented by the introduction of an “art exchange”, representing an advanced electronic purchasing tool, allowing Users to buy shares of high-value artworks. This digital platform could provide the significant opportunity to monitor the evolution of prices in real time: being the level of price governed by the invisible hand of the market, the price point is set where the supply meets demand.

As argued by the main economic theories, the free market has a tendency to correct itself naturally. In this respect, digital co-ownership and regulated trading of art shares could help the art market to defeat the black market. 

Also, the simultaneity of trading has a great potential for defining a new segment of the art market. The act of purchasing the artwork in a traditional way is in fact based on the assumption that, in order for the transaction to happen, a unique seller needs to meet a unique buyer, but, inevitably,  the time required for that transaction to take place is detrimental to asset’s liquidity. The simultaneity of trading, instead, will allow multiple sellers to meet multiple users in the smallest fraction of time.

As previously mentioned, the global expansion of the art market will naturally adjust the existing system over time. The dominance of the Internet has already blurred geographical boundaries and re-defined the understanding of time, creating a space for tech startups to exploit the need of a new niche of high-tech buyers. While the physical possession of an artwork may carry undesirable responsibility for buyers and put additional costs onto them, many chose to buy art without having it delivered to the door. Moreover, today lesser people feel the need to preview the art prior to their purchase. These are the factors calling out for a new niche in the market.                                        

New trading models based on technology, as the art exchange, will represent an innovative and alternative way to invest in art, being also an ally for traditional art players, providing services to all participants of the art market to facilitate their sales in the ever-evolving world of art.


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