Although there are many reasons as to why the art market appears to be a crooked business to outsiders, most explanations to why this is the case lead to unpredictable prices of artworks.
Unlike other businesses, where the price is set by certain tangible parameters such as the demand, the financial standard and competition, the art market has a different rulebook. Within it, the prices of what is being sold are defined by nothing and no one else but the sellers, them being the galleries.
In fact, saying that galleries set the price is actually an understatement. Manipulating is a far more precise term as curators and owners tend to fix prices to an extent that would probably be illegal in most, if not all, other industries.
Today, we'll be taking a closer look at one of the most irritating occurrences that regularly takes place in the art market's main vein - auctions. We're talking about the fact galleries often bid on their own artworks if the price at hand does not meet their expectations, an unfair practice that allows the galleries to not only secure profit but to get the absolute most out of every sale.
The blatant lack of transparency is the main reason strangers find the art market so baffling. To them, it makes a lot of sense that the value of art should be set by the aesthetic.
In order for these people to truly understand the way the art market functions, however unjust that system may be, they need to understand the economics of art galleries, primarily those in America and Europe.
Almost all primary art sales (that’s art bought from the artist as opposed to another collector) occur via the services of galleries. And, since the financial aspect of the sale is pretty much all that interests them, galleries go a long way to manipulate the prices in their favor.
In any other market, such manipulation of costs would cause distortions, shortages and inefficiency. But in its own peculiar way, the art market functions to such a degree that contemporary galleries generate tens of billions of dollars of revenue each year!
Of course, this applies primarily to bigger galleries as smaller venues often get obliterated and closed down by the bigger, richer players.
The truth of the matter is that value in art is arbitrary and subjective since the intrinsic value of a painting is paint and canvas. This is why the art industry has established an intricate and, arguably, rigged process where the approval of selected galleries, collectors and museums is what determines the actual value of an artwork.
Dealers who own and work at galleries invest many resources in building the artist’s brand so that they can set the value of his or her artworks as high as possible.
Of all the ways this is achieved, bidding for their own artists is by far the most popular and, to be frank, the easiest method.
Technically and even morally speaking, bidding for your own artists is cheating in almost every sense of the word. Yet, it’s been approved for so long that it actually grew into a valid method of bringing your artists’ value up, as well as simply securing that what you are trying to sell on an auction does not go for anything less than what you are willing to accept.
Such practice of bidding actually sparked the "art market is less ethical than the stock market debate" in 2009. Identifying this so-called tactic as nothing more than chandelier bidding, the debaters noticed that these bids are always anonymous and, of course, the gallery behind them has no need to actually buy the piece as they already own it.
What’s interesting is that most auction houses have no problem with this manner of doing business, which is somewhat surprising since their percentages of prices certainly do not go up if the piece does not get sold. However, as history already showed us on more than one occasion, auction houses always find a way to survive.
It may be obnoxious but, at least according to the people running the art market from within, it’s acceptable and this strategy is a legitimate part of doing business in this field. Yet, it is also not hard to see that this manipulation is just a cheap and not particularly equitable way of controlling the auction's outcome and making sure the galleries’ reputation, as well as their pockets, do not take a beating.
By definition, the unethical practice of bidding up prices of their own artists' works occurs when auction houses and the bidders do not reach a satisfactory price rate in the eyes of the selling parties. It remains a matter of debate how moral this practice really is and, quite frankly, there are relatively legitimate arguments to be made for both cases.
Those who stand behind this method claim that the art market is different and that certain things unethical for other industries are perfectly acceptable here. It’s supposed to be just an insurance policy in the big gamble game the auctions truly are – after all, a lot of money is at stake and, according to gallery owners, they are the ones who invested in the artists. They also say that this method keeps the clients’ wishes in check as it’s not in their interest for the artworks to go for too low a price.
Finally, the last argument is that they are doing this for other collectors as they are looking out for the overall value of the assortments their friends and colleagues are putting together.
On the other side, we’ve got arguments from those who despise this practice and see it as one of the biggest issues in the art scene. To them, no amount of sugarcoating it can hide the fact that this technique, if we can call it that, is just a way of bidding up prices so that galleries could get more profit.
It all comes down to that and, regardless from explanations saying other collections’ and the very artists’ interests are being taken cared of, it’s just a way of getting more money for what they sell.
It's completely fine when the galleries selling the artworks set the minimum bar in terms of pricing as, of course, it makes no sense to sell something that’s, let's say, approximately worth around $1M for $200,000 just because the work was exposed to a bad bidding audience.
The unethical part comes in when, however, if we were to stick to our aforementioned example, the bid breaches the $1M mark but the owners continue to bid up the price hoping to get even more money.
In order for real changes to take effect, it's necessary that all sides of auctions realize that something has gone severely wrong. By all sides, we mean the auction houses, gallery owners, collectors of all levels and the very artists behind the artworks. However, this is highly unlikely to happen.
The bottom line is that bidding up your artists' prices makes money for everyone that matters and nobody would be willing to change a thing. The only real victims of this practice are smaller-size galleries and collectors who can not catch a fair break when buying art, always either losing to richer colleagues or because the ones selling the artworks continue to bid the prices to unfair heights.
In other words, this practice allows those at the top of the art scene to remain at the top while making sure that the smaller galleries do not jeopardize the market's structure. It appears that the process of bidding for your own artists is just a consequence of the elite art world and, just like the case is with the previously aforementioned transparency problem, the top of the art market has no real reason to change a thing.
The question of would the art market function better if bidding for your own artworks was somehow removed from the equation remains unanswered, and, unfortunately, it will remain unanswered for the foreseeable future.
Featured images: Bidding During a Christie's Auction, via nymag.com; Auctioneer Henry Highley at the podium during the May 2017 Evening Sale in Hong Kong, via pinterest.com; An Auction Hammer, via bubblear.com. All images used for illustrative purposes only.