Sunday 2 December 2012

Fine Art: The Oddest Market of Them All?

It's not like the market for selling a large patent portfolio for many tens of millions of dollars. Still, the market for fine art is idiosyncratic and it is like no other market. From the copyright point of view, the market for paintings goes against most of what we are accustomed to believe about copyright. Thus we are wont to say that what makes copyright valuable is that the right does not reside in any single exclusive tangible item. The text of a book can be reproduced ad infinitum; there is no special value in any given tangible copy. The value is in the mass reproduction and distribution.

Contrast that with a valuable painting. True, a copy of a painting, such as series of lithographs, can be made and sold, but the unique value of the work is in the "original painting". It is the market for the purchase and sale of "original paintings" that makes the art market special (not even the most treasured first edition of a book can command the price of a desired piece of "original" art). As such, the commercial market for fine art is a world unto itself, with its own economic rules. But these rules seem to be under increasing challenge.

These tribulations are well-described in an article that appeared in the November 24 issue of The Economist. Entitled "Collectors, artists and lawyers" here, the article recounts how concerns over litigation about the authenticity of paintings is putting a damper on the market for works of fine art. The article centered on the challenges facing so-called authentication boards, which serve to certify the authenticity of paintings created, or allegedly created, by the artist under their watch. The commercial value of such boards is clear, as stated in the article: "Authentication reassures buyers, which stimulate sales."

However, the future of authentication boards as a major cog in the fine art industry is under threat. The problem is that any alleged mis-step in the process of authentication is increasingly likely to met by a lawsuit from either a disgruntled collector or dealer. In response, the various bodies for whom the boards work have taken our larger and larger liability insurance policies. More drastically, some have decided to disband the authentication process entirely. As a result, there is no longer an authentication board for such famous modern painters as Roy Lichtenstein, Andy Wharhol and Jackson Pollack.

The particular angst over authentication centres on the so-called catalogue raisonne, here, which purports to set out a list of paintings by a given painter whose provenance has been authenticated. While the commercial value of the list is obvious, it also provides grist for the litigation mill. If you are a collector and you have paid a hefty sum for a painting, it can be very distressing to find that the painting that you own does not appear on the catalogue list. The absence of that painting from that list will inevitably mean a lower price of that painting. The collector's response--file a lawsuit alleging negligence on the part of the board.

But the collector's victory, if he wins and collects (usually from the insurance company), may well have a deleterious result on the industry as a whole. Too many law suits filed, and the decision may then be made to disband the authentication board and, with it, the publishing of the catalogue. If that happens, it may well be easier for counterfeiters to hawk their wares (especially for modern art, classical art apparently being more difficult to counterfeit), which will have the effect of depressing prices across the industry.

Carried to an extreme, the result might be that only paintings by living artists, the authenticity of which the artist himself can vouch, will attract attract top dollar (or yuan). That is what is reportedly happening in China, where the view of so-called art experts is is frequently ignored, since such experts are perceived as being "in cahoots with a dealer or seller." An art market where artists themselves are the only reliable source of provenance for their works would be a far different market to that to which we are all accustomed.

That said, permit me to engage in a bit of musing. First, it seems spectacularly odd that the role of authentication can play such a potentially influential role on the pricing dynamics of the industry's product, especially since the downside to the authenticator's role is put into motion by the consumers for the product themselves. But if that is the current situation, maybe it is time to rethink the issue of allocation of risk. As anyone who engages in transactions between a buyer and seller knows, uncertainties about the transaction mean that the parties often need to reach agreement on the allocation of risk. Here, the risk centres on the genuineness of the painting at issue.

Since it is the consumer who puts the authentication process at legal risk, perhaps it is he who should bear the risk for the process. Due diligence by purchasers is a daily occurrence; why not put the ultimate burden for such on the purchaser of fine art? Or perhaps this suggestion is borne of equal amounts of naivety and outright ignorance about the workings of the fine art market. A unique, odd market indeed!

1 comment:

Ron Yu said...

I never know what to expect with this blog, that is why it is (at least for me) such a delight to read. For some strange reason your observation about art and copyright reminded me of a talk someone gave about the value of a fax machine running counter to conventional supply and demand curves – i.e. that the value of a fax machine increases with greater supply and usage of fax machines.

Personally I tend to agree with the notion that authentication bodies, if legitimate, are a good thing to have not just in the art as well as other collectible markets such as antiques, fine cameras, jewelry, etc. The average buyer doesn’t know how to distinguish between real and fake art given the quality of many fakes – and I would imagine that many buyers who bought fakes would be reluctant admit being duped.

It is funny you mentioned the Chinese market - there is a program on Chinese state television where people bring in antique art, ceramics, furniture, etc. and have them assessed for authenticity from a four man panel of experts. While I am not sure of the viewership for this program, the fact it exists demonstrates there is an audience in Mainland China that is concerned with fakes.

As for Chinese buyers, it is no unusual for someone with money to hire someone to do his/her buying (for art, wine, clothing, jewelry, among other things) and thus Shin-Yi Yang's observations (refer to the Economist article) about collusion between so-called experts and dealers are probably valid (although I would disagree about the contention that art from live artists sells for more than works of dead ones. I would argue, from my observation that the works of many dead Chinese artists (e.g. Zhang Daqian, Xu beihong) sell for far more than works of their living counterparts.

Having said that, this has not deterred Chinese buyers from driving prices sky high as a quick glance as through the Asian catalogs and auction results of Bonhams, Christie’s and Sotheby's would attest.