How the Art Market Works

The art market is one of the most unusual markets in the world. A single painting can sell for hundreds of millions of dollars, while most artists earn very little.

Primary and secondary markets

• The primary market is where new works are sold for the first time, usually by galleries representing artists.
• The secondary market is where works are resold, often through dealers or auction houses such as Christie’s and Sotheby’s.

Why prices vary so much

• Uniqueness: each original artwork is one of a kind, so there are no perfect substitutes.
• Reputation: an artist’s fame, history and critical standing heavily influence prices.
• Scarcity: works by deceased famous artists are limited in number.
• Status and wealth: buying art can signal wealth and taste, like a Veblen good.
• Investment: some buyers treat art as an asset, hoping prices will rise.

Record prices

In 2017, Salvator Mundi, a painting attributed to Leonardo da Vinci, sold at auction for around 450 million dollars, the highest price ever paid for a painting at auction.

Peculiarities

• Opacity: many private sales are secret, and prices are hard to compare.
• High transaction costs: auction houses charge commissions to buyers and sellers.
• Superstar concentration: a tiny number of artists account for a large share of sales value.
• Money laundering risks: the secrecy and high values have raised concerns, leading some countries to extend anti-money laundering rules to art dealers.

Art as an investment

Studies of art returns, such as those by economists Jianping Mei and Michael Moses, have found that art has, on average, earned returns comparable to or lower than shares over long periods, with high risk and high transaction costs.

India’s art market

India’s modern and contemporary art market has grown, with works by artists like S. H. Raza, Amrita Sher-Gil and V. S. Gaitonde fetching high prices at auction.