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How the formation of prices for artworks functions

Achieved prices for art works consistently arouse astonishment in the public.  One reason is that media mostly focuses their coverage on art that is sold at record prices. Additionally, the achieved prices do not necessarily reveal anything about the quality of the art works. But even in daily art business, the price formation, for many people, remains a mystery. Some obscurities can easily be explained by understanding the procedural approach of galleries for pricing.

Basically, the art market also follows the market law: The price for a product acts upon supply and demand. But the respective galleries are following some further principles which, at least at first sight, do not comply with market laws.

The most striking peculiarities which one can observe in connection with prices in galleries are:
- Prices for art works of an artist never decline
- There are no bargain offers (“sale”) or “99”-prices ($2499)
- There are no prices shown next to the exhibited works of art
- Works of art by an artist have the same price for the same size – independent of the quality (and demand)

There is a single reason for all this: The gallerist would like to carefully develop the career of his artist.

Therefore, the gallerist arranges the price in such a way that he/she never needs to reduce it. A price reduction would be a confession of his/her insufficient understanding of art and the market, as well as creating a humiliation for the artist. Even if an artist’s works cannot be sold during a longer period of time, the price is not reduced. In this case only, the price increase which happens routinely in the course of time will be omitted. Downward corrections of prices are, at most, only imaginable if the artist changes the gallery and presents a new body of work to the public.

Bargain offers would instil a loss of confidence for customers that have already bought art works by this artist. A fatal consequence for sure, because confidence is one of the most important elements in the art trade. To omit “99”-prices is a way to differentiate from the profane daily goods. The collector should never have the impression that the art work is a commodity, and that the gallery wants to seduce the collector into a purchase by suggesting it is cheap.

Exhibited art works do not have price tags next to them because the viewer should not be distracted (at many solo shows there is no information about the art work at all) and again to emphasize the difference to daily goods.

The gallerist does not evaluate the quality of an artist’s works by assigning different prices – he leaves the quality valuation to the prospective buyers and art experts. Furthermore, the art public expects an unvarying high quality in the artist’s body of works, so that it would be more than inappropriate to rank some works as being of lesser quality by assigning a lower price and nevertheless offering them to the customers. An additional reason might be that the gallery has close relations with the artist. Quality judgements would not only lead to time consuming discussions, but also to tensions with the artist.

In the secondary market, the prices for works of art are well appraised and predominantly determined according to quality. The reason is that the price is not defined by a gallerist who vouches for his/her artist, but by an art dealer who soberly evaluates and asks a higher price for works which are more sought after by art market participants.

The galleries define the relative prices for different works of art by the same artist according to the size of their respective works. Often the ratio of the sum of length + height of the respective works can be found as a scaling factor between works of different size. If works with different size are hanging next to each other, the smaller works appear disproportionately expensive. The reason is that while looking at the works, the more extreme area ratio automatically catches the viewer’s eye and not the price determining aspect ratio (a bisection in width and length means a bisection in price, while the remaining area is only one-quarter).

For the gallerist, this method of pricing has the advantage that on one hand certain fixed costs are considered which are the same for all works, and therefore have a larger impact on the price of smaller works. On the other hand, he/she can take into account that the demand for very large works is limited because there are simply much fewer collectors that have the required space in their homes.

For editions, the price mainly depends on the print run, the paper size and the method of making (e.g. etching, woodcut, and computer-printout). Within an edition, the price depends on how many copies are still available. So, it can certainly happen that in the case of an almost sold-out series, the remaining copies are offered at twice the price of the first works. Photographs are often offered only in a small edition of viewable copies. Otherwise the number of impressions lies within a spectrum of less than ten and up to several hundreds. In the case of some printmaking techniques (e.g. drypoint), the plate wears with the increasing number of impressions, which is why the print run is limited to about 25 copies to ensure the quality of the entire series.

The gallerist is anxious to put his artist’s works of art in well known collections and museums. That way, the artist’s status and consequently his “market value” is increased. Therefore, a gallerist will normally always prefer a museum over an unknown collector, even if the museum is only able to pay significantly less than the collector.

It is interesting to note that the prices for artist’s works that are commanded in galleries are to a large extent, decoupled from those which are paid at auctions. Gallerists are of course watching the prices that are paid for their artists at auctions, and auction houses are orienting themselves for the evaluation upon availability of comparable works in the gallery. But prices at auctions are always only snapshots of supply and demand. While being exposed to the persuasive skills of the auctioneer, accompanied by the excited atmosphere in the room, bidders let themselves become seduced into offers in which they otherwise would not even bid. The other way around, works of art for which there are only very few or no interested parties sell for significantly lower prices or remain unsold. A gallerist on the contrary, is seeking continuity and not a quick speculative success.

With regard to value stability and “confirmation” of value, it is ideal if an artist’s works achieve, at auctions, regularly higher prices than in the gallery (at which the works are then normally sold-out).

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