Management of Art Galleries – Business Models - Universität St.Gallen

Conceptual Basis 41 / 225Contemporary Art describes artworks by artists born after 1945. In the following these sectorswill be addressed by the term Fine Art. It is worth saying at this stage that the Fine Art sectorsand the dates that separate one sector from another are often subjective and loosely interpreted.The primary market for Fine Art deals with work that is on the open market for the first time.Unorganised individual artists with little market power provide works to galleries or exhibitions.This market is highly decentralised (Throsby, 1994). An artist’s work at this stage has not beenbought or sold before. Prices develop over time and are usually not transparent to the widerpublic. In this market dealers and brokers operate on small margins with little or no stock(Thompson, 2008).The secondary market describes the second layer of the market. When a work is sold there is achance that it will eventually reappear on the market. Artists dealt with in this market are eitherin their late middle age (Contemporary), dead (Post-War, Modern) or long dead (19th Century,Old Master) (Throsby, 1994). Particularly, today’s fast moving cutting-edge Contemporarymarket changed the constitution of the secondary market in the Fine Art sector: young artists,with an unpredictable longer-term significance, are dealt with and show heavy price jumps withhuge volatility. In this market the key players are established galleries with huge funds andstocks.Very closely linked to the secondary market is the tertiary or auction market. This market isusually located in significant cities where art is traded and works are circulated. Main playershere are auction houses (Throsby, 1994). Since both secondary and tertiary markets ofteninteract, for example when a dealer offers a work at auction or buys from an auction to resell to aclient, it can be argued that they have become indistinguishable from each other (Boll, 200).Hence, for the rest of this paper we will refer to both as the secondary market.Competition factors vary between the primary and secondary trading levels. In the primarymarket competition is widespread because there is an oversupply of artists compared to potentialbuyers. Hence, prices are generally low. Throsby (1994) argues that artists in the primary marketdo not exert any supply-side power and are unable to restrict competition or raise prices (p. 5).The secondary market, in contrast, is more concentrated on both the buying and selling side. Fewartists are successful enough to appear on the secondary market and there is a smaller number ofpotential buyers, since large resources are required to be active here (Throsby, 1994, p.5). Hence,key players in the market can exert great power on the rise and fall of an artist and manipulatefuture price expectations (Singer & Leslie, 1981).2.3.3 Data for the Fine Art MarketNarrowing down the entire market with fifteen categories to only the Fine Art market allows amore in-depth analysis of its composition. Data can be drawn from rich auction results in the pastfor our identified temporal sectors: Old Masters, 19th Century Art, Modern Art, Post-War Artand Contemporary Art.