Does an artist’s work substantially rise in value in connection with his or her death? This question was verified by R.B Ekelund, Rand W. Ressler and John Keith Watson in their academic article The “Death-Effect” in Art Prices: A Demand-Side Exploration, Journal of Cultural Economics, 24, 283-300 which was published in 2000.

In order to examine  the rising artists’ values around the day of death the authors used auction house sales records for Latin American artists between May 1977 and November 1996. Using these data they constructed a demand function in which variables like price, rate of interest and price of substitutes are included. Afterwards they practised regression on this function and so they succeeded to prove their hypothesis of the “Death-effect”: a significant rise in artists’ values immediately preceding and after the day of death.

So apparently the "Death-effect" is a fact, but what clarifies this effect? I always thought that taste, income and hype were the principal factors to determine the demand and consequently the prices. Obviously there is much more. Ekelund, Ressler and Watson explain this phenomenon by the so-called “durable goods monopolist”-theory. In this theory artists are compared to monopolists whose products are unique. So the death of an artist is a guarantee that in the future there won’t be overproduction of his work. In fact there will be a limited supply and that’s why prices shoot up.  

Stéphanie De Wispelaere

http://www.springerlink.com/content/l117614g7r4584g6/

26-02-2012, 18:34 Geschreven door Shark6.5  

Branded artists, distinguished galleries, strong reputations. You might link these words with high art prices. I certainly do. But is there really a connection? Susanne Schönfeld and Andreas Reinstaller tried to find the answer in their academic article The effects of gallery and artist reputation on prices in the primary market for art: a note, Department of Economics Working Paper Series, 90, 1-13 published in May 2005.

For their investigation Schönfeld and Reinstaller applied the Undercut Proof Equilibrium model (UPQ). In this model art galleries try to anticipate the reaction of others and set prices in such a way that there is no longer an incentive to undercut their price. Because normally galleries try to gain market share by undercutting prices of competitors.This causes a lot of instability and uncertainty which undermines the art selling.

The results of this model are unexpected. Although my intuition says that prominent galleries should set high prices, the model shows that galleries’ reputation reduces the equilibrium price. But on the other hand artists’ reputation correlates positively with art prices.

How can this be explained? Well, the explanation is simple: the danger of being undercut encourages high-placed galleries to set comparatively lower prices. Otherwise the lower-placed galleries would gain market share. So there is definitely a connection between galleries, artists’ reputation and art prices, but surprisingly galleries have a negative correlation with prices.

Stéphanie De Wispelaere

26-02-2012, 16:48 Geschreven door Shark6.5