The economics of art auction houses and an insight on their functioning
“It appears we’ve just been Banksy’ed.” This sentence could go down in history as one that bought the next artistic revolution. Banksy, an anonymous British street artist whose work always manages to make a political statement, had put up his famous “Balloon Girl” painting for auction at the Sothesby’s studio of contemporary art. What caught the headlines was that immediately after the painting was sold under the hammer for $1.3 Million, it self-destroyed due to a shredder attached inside the frame by the artist. The entire world saw in unison, as one of Britain’s most famous pieces of art shredded through the golden frame it had been decorated within.
Banksy has a history with such stunts. He once smuggled in stick figure paintings inside a famous art exhibition and put them inside gold frames to make them look like they belonged on the privileged and invitation-by-entry walls of the art exhibition. He even gave the stick figures a conversation where one of them asks “Does anyone take this kind of art seriously?” and the other stick figure replies “Never underestimate the power of a big gold frame”. Thus, Banksy has time and again tried to make a statement against the private ownership of art and the auction process in general. Being a street artist, he probably wanted his art to be accessible to everyone around the world, regardless of their financial standing.
Perhaps the most notorious bug to bite the art establishment is the lack of accessibility. In an industry worth an estimated $64 billion by ArtNet in 2015, commoners without millions of spare dollars in their bank account to spend on paintings are often ostracized. Banksy hoped to make a statement against this, but the art establishment being a tougher nut to crack than the one in Ice Age stomped it foot down and increased the value of the “Balloon Girl” painting that had been destroyed, calling it a new and revolutionary work of art that had been created inside the auction house.
This reflects the self-absorption that the art community finds itself in. Any art that critiques them, they make their own and place a price higher than prevailing market prices, to go against the establishment that tried to question them. They have even given such sort of art a category- institutional critique. This is art that actively critiques the structures that the art itself resides in. These structures could be museums, galleries, or in Banksy’s case, the auction house. This shows that the art establishment loves being questioned and criticized, but at the end of the day, reigns supreme as they ultimately control the prices.
Why is this? Why do artists not get to decide what value their paintings should be sold at? Why, unlike most other commodities, is there nothing like a fixed price on art in particular?
The answer to the first question is dealers. They are the middlemen. The strongest and the most profitable link on which the art community thrives. Dealers use selective information to interact with buyers, thus making the relationship between artist and consumer opaque, instead of transparent. Dealers also create scarcity, which drives the price up due to limited supply and an ever-increasing demand for the product. For example, in 1999 Charles Saatchi, one of the most reputed art dealers, got in touch with rising British contemporary painter Jenny Seville, and promised to sell her paintings for big money if she promised him that she would create no more than six paintings in a calendar year. He created scarcity in the production of an artist who was generating hype. He eventually managed to sell all six paintings for a hundred thousand dollars each. This shows the importance of the dealer and also the inner-functionings of the art circuit.
Everything, in the business of art-dealership is private. From the percentage of the share the dealer gets, to what the dealer pays the artist, to who the dealer invites to the auction. This helps dealers rely more on their reputation to convince buyers that the piece of art is worth more than it really is. If a famous and reputed dealer like Saatchi was to call a painting revolutionary, it would become so. However, one might ask why dealers don’t claim every painting to be revolutionary because that might result in maximum profit for them. This is because dealers still work closely with art-critics, and the combination of approval on both fronts of the dealer and the critic makes a piece highly credible and increases its “artistic value”.
Indeed, the art market and auctions are to a great extent influenced by the
imperfect information, or the information asymmetry that exists. Participants may not be equally informed about the artwork quality or resale value. Obtaining the information might be costly, but higher the cost of making a mistake, higher the willingness to pay for the information. The mistake here refers to buying a possible fake, or buying a damaged or weathered piece of art. Buyers, sellers or their delegates can find the information regarding the artwork they wish to purchase in various online sources, art prices databases or indexes. (Heilbrun & Gray 2001)
An instance of making the exchange of art more transparent by making certain information publicly available was seen in New York, where the state government actually tried to put a price on paintings in 1988. They did this through “the truth of pricing law” that would force museums and galleries to make their price tags transparent. Galleries and art collectors retaliated. They paid fines but did not follow this law as they felt it would take the pleasure out of art exhibitions and make them too similar to sales of other basic and non-aesthetic commodities. The motive was that galleries wanted to keep pricing power in their own hands, so as to maximise their profits though the dealer-critic approval system.
Even though the dealer is the most important link in the purchasing of art, their job is highly influenced by the reputation of the artist whose art they are selling. Sure, the Picasso’s and Da Vinci’s will rake in the cash, but what happens when the same paintings are sold anonymously, without the grandeur of dealers and artistic reputation ascribed to it. This is where Banksy and his ideology becomes relevant again. In 2013, Bansky set up a pop-up stall at Central Park, New York. He sold his art prints to walkers for $60 each, the same prints that would probably fetch millions of dollars at auctions. His entire pop-up store was valued at more than $1 million dollars, but he only made around $450 that day and people walked by without a second glance.
This instance proves why reputation of the artist, and the grandeur of the art auction is so important. People were buying work by Banksy, only, they were unaware it was his work. If they did, as they do in auction houses, they would have spent a fortune on the same art prints. This stunt is also the rebuttal I use when conspiracy theorists claim that Banksy destroyed his painting for increasing the value of the painting and earning himself more money. He doesn’t care about the money. He is still anonymous. He just wants to make a statement.
Another fascinating piece of art that will help us explore the nuances of the auction system is the “Orange Balloon Dog”, a stainless steel sculpture by Jeff Koons. It is basically a 3 meter tall version of the balloon dogs that clowns make during your 4 year old brothers birthday party. It was sold for $68 Million in 2014, which made it the most expensive piece of art sold by any living artist. The buyer, a New York collector Jose Mugrai, stored the structure in a private warehouse. When asked why he bought it for that much, he said that he will get a future return on his investment by reselling the piece some years down the line. What also drove the price up, was the fact that only 5 of these balloon dogs were ever produced, all different in color. 4 of these are owned by the most respected and revered art collectors around the world. The 5th one went on auction, and guaranteed its buyer a direct entry to this illustrious club of revered art collectors. The entry ticket? $68 million only. (The Orange Balloon Dog, Don Thompson)
This shows us two things. One, that more people around the world have started seeing art as an investment that saves them tax on their income for the time that they own it, and promises a safe return when sold through the right dealer at the right auction. Second, that art communities are alternate universes that operate on unimaginable amounts of money, and you need a ticket(very expensive) to enter this parallel universe. Most big paintings, like the Van Gogh’s, are exchanged within this alternate universe, and the normal public gains access to them only if someone from that universe feels gracious enough to donate their painting to a museum.
Sure, the art that you own and choose to buy reflects on your personal taste too. But at most of these unimaginably and incomprehensibly high prices, art is a lot more about prestige, investments, and being in on the upper trenches of the artistic establishment.
Banksy once famously wrote, “art should comfort the disturbed and disturb the comfortable.” He tried to disturb the comfortable by destroying his painting. What he forgot was that it is the comfortable who choose who disturbs them, and then make the disturber a part of the comfortable. Banksy disturbed the parallel universe of art establishment, so they made him an irremovable part of it.