Daniel Grant tries to take on the whole issue of transparency in the art market in his Huffington Post column. In addition to the usual complaints about chandelier bidding and repeat of the desire for reserve prices to be published, Grant quotes a dealer who worries that third-party guarantors will hype works to unsuspecting buyers. That’s fairly amusing when so many in the art world admonish collectors not to buy with their ears.
Grant tries to suggest that information asymmetry is an abnormal situation in markets:
In classical economic theory, the efficiency of the market requires all rational consumers to have full knowledge of the products they are looking to buy and what others in the market are doing. Consumers presumably will reward the sellers of better merchandise with higher prices and pay less or nothing for lower quality products. Certainly, information about an artwork’s history of ownership (called the provenance) and condition, as well as public sale records for that work or pieces like it, give would-be buyers much confidence when they look to make a purchase. Economists often theorize that more information leads to higher prices overall, as consumers will pay more when they have greater confidence borne of more knowledge, but the art trade has tended to assume the opposite.
Grant sounds like an economist with all the non-factual language–“presumably” and “theorize”–but that doesn’t make his case very well. Which classical theory is Grant referring to here?
More to Grant’s point, it could be a coincidence that the art market has exploded long with the increased availability of pricing information and the growth of the auction houses which act as the most visible exchange and record of prices.
If that’s the case, bringing in third party guarantees would actually increase the validity of auction prices (because the auction houses aren’t setting the guarantees themselves) while it generates liquidity in the market. That’s because the prices are being set by real buyers (the guarantors who must purchase at the pre-determined price) while opening the sale to all comers.
What’s a better source of confidence than knowing that there is a buyer for the work sitting in the wings waiting to take posession?
Secrets of the (High-End) Art Market (Huffington Post)