In my opinion, the Thornton reading was one of the most interesting so far. It gave an extremely in-depth economic analysis of how the market functions today, through the main hubs of high-level activity to the lower, dealer-level marketplaces. The sense I got was that, in general, the contemporary art market is mostly artificial, with manipulations of public sentiment and market savvy representing one of the main price drivers, instead of the underlying value. The main benefit art collectors seek is one of improved social status, with the emphasis increasingly on art as a commodity or investment rather than a valuable product in and of itself. I think this represents an extraordinary characteristic that is unique to the art market, in that art ultimately provides each consumer with a different experience, and elicits a different reaction, to the extent that each prospective buyer can award a painting a unique and individual monetary price. In this sense, a true "market price" derives from the summation of all these prices, until the collector with the highest willingness to pay is ultimately rewarded with the product. Unfortunately, this may not represent the correct price for that collector; art has evolved into a considerable status signal. The art world is incredibly insular, and in the upper echelons one can find a tight-knit community constantly trying to one-up each other and increase their relative prestige, to the extent that a single piece of gossip at the time of an auction can result in millions of dollars difference in final price. Therefore, prices generally follow the "herd mentality" or the public, or their tendency to adopt the common market valuation as the "correct" one for no other reason that mutual trust in the peers, and exorbitant and inefficient prices are the result. The art market is an economy of belief; art is only worth what someone is willing to pay for it, and the maintenance of value relies on the management of confidence at all levels: confidence that the artist will continue to be culturally significant, confidence that the work is a good one, and confidence that others will not withdraw their financial support.
Auctions provide a key location and market crossroads for these observations to take place. The reading concerned itself with Christies, arguably the premier auction house in the world, especially in its New York location.The entire process, from the "specialists" to the methodology of the sale to the auctioneerChristopher Burge, is designed to achieve the maximum bid possible as a result of the proceedings. The auction house take a percentage as commission, perfectly aligning the auction house's interests with value maximization, which, on paper, should be equivalent to the interests of the artist or vendor. This mindset represents the majority of the auction market, as Sotheby's and Christies together represent an astounding 98% of the auction market. The auction houses have often built personal relationships with many of the key buyers, knowing in advance which are likely to bid and able to provide reliable estimations of final price. The auction house is set up to produce a "high society spectator sport," with the actual bid representing as much of a status symbol as the ownership of the art itself. There is a much-described "rush" or burst of adrenaline when a bid is made in front of all the prestigious watchers and an even greater artificial high when the painting is "won." Winners of art will be published in art magazines and other publications for regular circulation, as the mere ability to buy an expensive work of art generally carries greater value than its ownership or display. Huge names can suddenly produce intense fluctuations in art; for example, the "Larry Gagosian Effect" occurs when rumor states that Gagosian is about colllect another artist in his gallery, and everyone immediately attempts to purchase art, in anticipation of skyrocketing prices -- Gagosian often "protects" his buyers at auction with large bids. Many artists protest this impersonal portrayal of art, rejecting the "asset" vocabulary of the new commodity, often not attending the very auction in order to maintain their "purity." Others, such as Hirst, welcome the superficial demand created for the art and the higher economic value it carries, and have profited from it due to market savvy and ability. Dealers, seeking to promote their artists, often won't sell to collectors known for "flipping" art in auction settings, as they generally view the auctions as immoral or evil. Furthermore, auction prices can wreak havoc for an artist's career: a singular high price can set unrealistic expectations for the artist's future, and failure to meet these prices in the future could result in swift loss of demand for the artist's later work. On the other hand, high prices can catapult an artist into the public eye, but failure to sell and having the artwork "bought-in" by the auction house can produce humiliation to a career-ruining degree. Other players, such as art consultants who gain commission for he purchase of paintings for wealthy collectors, serve to exacerbate the situation, as their job revolves around inflating the prices of artwork to the maximum extent through salesmanship, flattery, or exaggeration. Auctions ultimately provide the illusion of liquidity, which in turn produces confidence, creating an increasingly subjective and artificial market -- many artists doing well now will have zero value in ten year, as auctions have short memories.
This is the first time since the 1950s that art has been shown to this much fanfare. Prior, artists like Picasso made their careers in the private sphere, seeking to find patrons themselves who would support and commission art, and deliver the artist to prominence. Now, the high spectator-aspect of art, as well as the abnormally high returns and ongoing bull market which has propelled it it into a relatively attractive investment opportunity, art has converted into more of a commodity that a product with unique intrinsic value. Time lags between the studio and the resale market are decreasing, as secondary markets are gaining prominence and collectors are increasingly seeking to purchase art for the return on value rather than its ownership and appreciation. In fact, there is a shortage of supply, as consumer run out of early or ancient works and consequently are constantly seeking newer, younger art. It is a buyer's market, but a commodity market with its individual piece losing unique value.
An example of a gigantic Christie's sale is the 2008 sale of Monet's Le Pont Du Chemin de fer a Argentuil for $41.8 million. The auctioneer waits over 90 seconds before accepting the final bid, almost twice as long as the entire previous auction, in an attempt to expertly eke out the absolute highest bid possible. It is a very tense minute and a half, as everyone seems to be looking at everyone, sharing disbelief at the price and excited at the prospect of such a large sale--you could almost hear a pin drop. The buyer ultimately remained anonymous, but whether he elected to eventually reveal himself is unclear. The high price could perhaps be explained by the fact that this was a very old painting, by normal contemporary auction standards, and the fact that there is very little current supply of traditional paintings means that they can command a high premium when lured out of collector's mansions. A picture of the painting is below, as well as the video of its sale.
Watch the sale: