Fellow appraiser and ISA instructor Kirsten Rabe Smolensky, JD, ISA CAPP sent me an interesting article from Artsy on the some of the benefits of making dealer prices more publicly available. They did not list it would make life easier for appraisers, but it does have some interesting points on potentially improving sales. It does mention the need for not disclosing prices such as collectors wishing privacy at the top end of the market, and then makes the case for disclosure on lower market works. In any event, an interesting article.
Artsy reports
Source: ArtsyIn the world of $10-million and $100-million paintings, there is a decent argument to be made for the safety and flexibility offered by private deals and prices being distributed only on request. Relationships are more important than a hundred-thousand dollars here or a million dollars there, and the small universe of potential buyers for the work is almost always already known to the seller. But these dynamics don’t actually apply to most of the art market, and pretending that they do is having negative effects industry-wide.
As discussed in the previous edition of this column, making prices available without forcing a buyer to ask is among the easiest things the art world can do to bring in new buyers. Publicly available pricing can also increase sales to current art buyers and help address the concentration of success among a few big, branded galleries and artists. Economic theory and Artsy data combine to show why.
The lack of publicly available pricing is a form of information asymmetry. It’s natural for sellers, as experts in what they sell, to have an upper hand in the quantity and quality of information about their wares. But large asymmetries of information between buyers and sellers have been shown to negatively affect the markets in which they exist. Economist George A. Akerlof explored this phenomenon in depth in his 1970 paper “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism,” which looked at asymmetries in a number of markets, including that for used cars.
Asymmetries push buyers toward name brands, even if those brands are less of a perfect fit with the buyers’ taste.
At their worst, Akerlof found that asymmetries of information in markets of uneven quality can prevent certain buyers who would have been willing to transact at a given price from transacting. At best, asymmetries push buyers toward name brands, even if those brands are less of a perfect fit with the buyers’ taste.
Anyone who has observed collector behavior for a few years can attest to the latter effect’s existence in the art market. Buyers tend to start out collecting validated brand names like Warhol, Picasso, Basquiat, and KAWS, whether originals for a lucky few, or prints and merchandise for many more. Regardless of the availability of prices for these works, the vast quantity of available inventory combines with the psychological safety of buying a brand to create confidence around the artist and the price quoted for the work—even if, purely based on personal taste, the collector may actually prefer works by another artist.
Artists in this case are a bit like Applebee’s hamburgers, to borrow Akerlof’s analogy to chain restaurants. As he explained: “These restaurants, at least in the United States, most often appear on interurban highways. The customers are seldom local. The reason is that these well-known chains offer a better hamburger than the average local restaurant; at the same time, the local customer, who knows his area, can usually choose a place he prefers.”
Inquiries were between four and nine times more likely to turn into a sale on artworks with their prices publicly available.
Buyers being fully sidelined by asymmetries of information is a potentially less obvious effect, but one that can be demonstrated using Artsy inquiry and sales data. To do this, we looked at the relative conversion rate of inquiries on Artsy to sales for artworks published on the platform over the past year (during that period, just under two-thirds of artworks listed on Artsy had a publicly available price). To control for differences in overall demand for artworks, we filtered down artworks to only compare works with a similar propensity to sell, based on a proprietary algorithm. We also controlled for any artwork for which no price was logged by the gallery either publicly or privately (18 percent of all artworks).
For all sets of artworks, inquiries were between four and nine times more likely to turn into a sale on artworks with their prices publicly available. Artworks with publicly available pricing also received one-sixth the number of inquiries overall, which means galleries were able to spend time they would have otherwise used to field unsuccessful sales inquiries on nurturing relationships with collectors and curators, supporting their artists, and putting on great exhibitions.
The potential impact of this opportunity cost on smaller galleries with limited resources and time should not be underestimated. Even if you assume that the sales associate has all the relevant information on hand to answer the inquiring buyer, and that each inquiry takes an average of 10 minutes between context switching and generating a thoughtful reply, a gallery that does not post prices publicly will spend an hour of staff time for every 10 minutes spent by a gallery that defaults to posting prices publicly.
An artwork uploaded with its price publicly available was between two and six times more likely to sell than one with its price hidden.
The typical gallery that defaults to publicly available prices will also receive more sales for each similar work uploaded, on average. Controlling the sample further for the number of available works within each available population, we saw that for artworks in the top three segments of other factors that contribute to demand (such as the relative popularity of the artist and the artwork’s medium and size), an artwork uploaded with its price publicly available was between two and six times more likely to sell than one with its price hidden. Results on conversion from upload to sale for the bottom two segments were inconclusive, which we believe is due to the higher variability of artworks and demand within those two segments.
As Akerlof’s paper hypothesized, the data suggest there were willing buyers who weren’t expressing an intent to buy (asking for a price) when the work’s price wasn’t available. This means that there are works sitting in galleries’ storage, actively costing the galleries money to hold onto, which could have sold if their price had been made publicly available. There are artists who could have more money in their pockets to invest in their practices (or families, or anything else they might want in life). And there are art buyers who could be living with more art they love.
What’s more, because limiting information asymmetries spreads demand out to lesser-known brands, more publicly available pricing can help support a larger art ecosystem and bring yet more artists to the fore.
That all sounds more thrilling to me than being one of hundreds to receive a price list in my inbox. Who wants more email, anyway?
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