Faculty of Business
Administration and Economics
Anomalies in Fine Art Markets -
Three Examples of an Imperfect Market
for Perfect Goods
A thesis submitted to the
University of Paderborn
Faculty of Business Administration and Economics
Warburger Str. 100, 33098 Paderborn, Germany
Submitted by
Dipl. Oec. Christian Knebel
Ruhrstr. 94, 58452 Witten, Germany
E-Mail: [email protected], Tel.: +49 (0)177 2563235
December 3rd, 2007
Anomalies in Fine Art Markets – Abstract
Christian Knebel Page I
Abstract
Based on the research conducted in the fields of cultural economics and economics of
the visual arts, this thesis focuses on three special anomalies in the market for fine arts.
After a short introduction to the history of research on the economics of the visual arts in
chapter 1, chapter 2 sets out the basic requirements for further analysis, namely the founda-
tions of art markets, the characteristics of art as a good, market structures and actors, as
well and the driving forces of supply and demand and the resulting pricing mechanisms.
Special attention is drawn in chapter 3 to the data used for analysis, which is artist data
from Artcyclopedia, auction price data from Hislop’s Art Sales Index and Artprice.com,
gallery price and reputation data from the Capital Kunstkompass, and popularity data taken
from the number of total hits registered by the Google search engine. Next, in chapter 4,
the three anomalies are analyzed. The three topics are 1) a comparison of pricing strategies
in dealer and auction markets, 2) the effects of an artist’s death on appreciation of his/her
works (called “death-effects”) and 3) artists and superstardom. Lastly, the conclusion in
chapter 5 summarises the results presented in chapter 4 and indicates possible future re-
search topics.
The thesis presented here is original as regards the way in which the anomalies are ana-
lyzed. Data is utilised which has never before been employed in this context, in this depth
and in this combination. Furthermore, the anomalies described here have previously been
described only scantly, if at all, in the context of economics of the visual arts. Owing to
these special features, the thesis has broadened the research agenda and created new im-
pulses for further research. For outsiders, the strange behaviour of the art market is partly
explained from the point of view of an economist.
Anomalies in Fine Art Markets – Zusammenfassung
Christian Knebel Page II
Zusammenfassung
Basierend auf der Forschung für Kulturökonomik bzw. die Ökonomie der Bildenden
Künste zeigt diese Dissertation drei spezielle Anomalien in Märkten für Bildende Kunst
auf. Nachdem eine kurze Einleitung die bisherigen Forschungsergebnisse im Bereich der
Ökonomie der Bildenden Künste in Kapitel 1 darstellt, werden zuerst die Grundlagen der
Forschung im zweiten Kapitel erklärt: Dies umfasst die Eigenschaften von Kunst als öko-
nomisches Gut, die Marktstrukturen und Akteure, die treibenden Kräfte von Angebot und
Nachfrage sowie die daraus resultierenden Preisbildungsmechanismen. Danach werden in
Kapitel 3 die verwendeten Datenquellen näher erläutert. Dies sind Artcyclopedia für Kün-
stlerinformationen, Auktionsdaten von Hislop’s Art Sales Index sowie Artprice.com,
Galeriepreisdaten und Reputation vom Capital Kunstkompass sowie Popularitätsdaten in
Form der Gesamtanzahl von Treffern bei Google. Als nächstes werden dann die drei Ano-
malien in Kapitel 4 näher analysiert. Die drei Themen sind 1) ein Vergleich zwischen Pre-
issetzungsstrategien bei Galerie- und Auktionsmärkten, 2) Todeseffekte bei Künstlern und
3) Künstler als Superstars. Die Zusammenfassung in Kapitel 5 fasst die Ergebnisse
zusammen und zeigt mögliche Wege für weitere Forschungen auf.
Die hier präsentierte Dissertation ist im Hinblick auf die Art und Weise wie die drei
Anomalien analysiert werden besonders: Es werden spezielle Daten in neuen Kombina-
tionsweisen verwendet, was in diesem Kontext noch nie zuvor getan wurde. Alle drei prä-
sentierten Anomalien wurden bisher noch nie oder nur spärlich vor dem Hintergrund der
Bildenden Künste analysiert. Aufgrund dieser Besonderheiten wird das Forschungsfeld der
Ökonomie der Bildenden Künste erweitert und erhält neue Impulse für spätere Forschun-
gen. Für Außenstehende werden die teilweise merkwürdigen Verhaltensweisen des
Kunstmarktes aus der Sicht eines Ökonomen erklärt.
Anomalies in Fine Art Markets – Contents
Christian Knebel Page III
Contents
Abstract ..................................................................................................................................I
Zusammenfassung.................................................................................................................II
Contents............................................................................................................................... III
Index of Figures .................................................................................................................. IV
Index of Tables......................................................................................................................V
Index of Abbreviations and Symbols.................................................................................. VI
Acknowledgments..............................................................................................................VII
1. Introduction................................................................................................................... 1
1.1. Founders, Followers and Specializing Research....................................................... 2
1.2. Analytical and Statistical Research........................................................................... 4
1.3. Outline of this Thesis ................................................................................................ 9
2. Basic Theories............................................................................................................. 11
2.1. Art as a Good........................................................................................................... 11
2.2. Art Markets and Actors........................................................................................... 13
2.3. Pricing of Art........................................................................................................... 22
2.4. Conclusion............................................................................................................... 29
3. Data Available for Analysis........................................................................................ 31
3.1. Availability of Data for the Different Markets........................................................ 33
3.2. Artist Information: Artcyclopedia........................................................................... 34
3.3. Auction Price Data: Hislop’s Art Sales Index and the Artprice Database.............. 34
3.4. Gallery Prices and Reputation Index: Capital Kunstkompass ................................ 39
3.5. Measure of Popularity: Total Count of Google Hits............................................... 40
3.6. Collecting, Cleaning, Processing and Combining the available data...................... 42
3.7. Conclusion............................................................................................................... 43
4. Three Anomalies in Art Markets................................................................................. 45
4.1. Markets for Art: Different Pricing Strategies.......................................................... 45
4.2. Supply and Demand on the Art Market: Death-Effects.......................................... 64
4.3. Middle-Men, Experts and the Media: Artists as Superstars.................................... 80
5. Conclusion................................................................................................................. 116
Bibliography...................................................................................................................... 119
Appendix A: Data Sources for Art Market Information ..................................................VIII
Anomalies in Fine Art Markets – Index of Figures
Christian Knebel Page IV
Index of Figures
Figure 1 International Art Auction Market by Lots Sold (2003/2004) ......................... 15
Figure 2 International Art Auction Market by Turnover (2003/2004).......................... 16
Figure 3 International Art Auction Market by Turnover (1990 to 2004)...................... 17
Figure 4 The Classic Structure of the Art Market and its Actors.................................. 19
Figure 5 Extended Picture of the Art Market and its Actors......................................... 21
Figure 6 Average Price and Number of Transactions by Year (1922 to 2004)............. 37
Figure 7 Average Price and Number of Transactions by Month................................... 38
Figure 8 Price Development at Different Ages in Dealer and Auction Markets........... 55
Figure 9 Regression Lines for Influence of Age on Dealer and Auction Prices ........... 58
Figure 10 Price Development from 1971 to 2004 in Dealer and Auction Markets......... 59
Figure 11 Price Indices from 1971 to 2004 in Auction Markets..................................... 60
Figure 12 Hedonic Price Indices from 1972 to 2004 (2003 as reference)....................... 62
Figure 13 Volume Traded Around the Death of Artists.................................................. 72
Figure 14 Development of Auction Prices for Different Groups of Artists .................... 73
Figure 15 Price Index 1959 to 2002 (2003 as reference)................................................. 77
Figure 16 Coefficients of Various Measures of Time Window around Artists’ Death... 79
Figure 17 Distribution of Google hits.............................................................................. 95
Figure 18 Distribution of Capital Kunstkompass Points................................................. 96
Figure 19 Regression Lines for Google......................................................................... 102
Figure 20 Regression Lines for Google (2 groups) ....................................................... 104
Figure 21 Regression Lines for Capital Kunstkompass Points ..................................... 107
Figure 22 Scatter Plot with Google Hits and Capital Kunstkompass Points................. 109
Figure 23 Hedonic Price Index 1954 to 2004................................................................ 111
Figure 24 Regression Lines for Google Hits and Capital Kunstkompass Points .......... 112
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