The interest economists put on the art market has been increas-ing in the last years (see for example the books by Caves (2000), by Throsby (2001), by Candela and Scorcu (2004), and by Zor-loni (2013)), with a main focus on the price-formation mecha-nism of artworks in the “secondary market” and on the auc-tioning in particular (Ashenfelter and Graddy, 2003).
In the literature there are several art market’s segments defi-nitions. A good definition of primary and secondary market is given by Throsby (1994, p.5): the former is where “unorganized individual artists provide works to galleries, local art fairs and exhibitions, small dealers, and private buyers”, while the lat-ter consists in “established artists, dealers, and public and pri-vate collectors” who “circulate work by live artists who have managed to make the transition from the primary market”. An alternative definition of primary market is given by Velthuis (2003, pp.181-182), describing it as “the market where contem-porary artworks are sold for the first time”. Also Sch ¨onfeld and Reinstaller (2007, p.144) give a similar definition, saying that
“[t]he primary market comprises all artworks without prove-nance, i.e., the market where artworks are sold for the first time.
Art reentering the market is sold in the secondary market seg-ment”. Zorloni (2013, p.58) contains an alternative description
of the primary and secondary markets, identifying the former as the market “where private collectors or dealers buy works of art directly from the artist or other private individuals” and the latter as the one where “the exchange takes place between the individual via the intermediary of the auction house”. Fi-nally, Candela and Scorcu (2004) define the primary market as the artist’s market, the secondary market as the gallery’s mar-ket, and they also introduce the “tertiary market”, defining it as the auction’s market. In what follows, we adopt the Velthuis’s and Sch ¨onfeld and Reinstaller’s definitions, together with the definition in Candela and Scorcu (2004) for the tertiary market.
As we hinted above, little attention has been paid to the theo-retical functioning of the “primary market” and the galleries’
role,6though there is a series of papers that study this issue un-der an empirical point of view (both quantitative, as Rengers and Velthuis (2002), Beckert and R ¨ossel (2004), Hutter et al.
(2007), and the analysis in Chapter 4, and qualitative, as Velthuis (2002, 2003, 2007, 2011)), or using a simply descriptive approach, as Peterson (1997), Kawashima (1999), Benhamou et al. (2002), and Caves (2003). In particular, Velthuis (2003) focused on the price-formation mechanism of art galleries identifying the ex-istence of “pricing scripts” used by the dealers, that generally consist in a series of rules for which the price is never decreased but, at most, discounted (Sch ¨onfeld and Reinstaller (2007) de-velop a model of competition among galleries which is con-sistent with these pricing scripts); under a more marketing-oriented point of view, Cellini and Cuccia (2014) analyse the price-formation mechanism in the primary market, consider-ing the artist and the art dealer as part of the same marketconsider-ing
6See Shubik (2003) and Sch ¨onfeld and Reinstaller (2007).
Beside the distinction between primary and secondary mar-kets, Velthuis (2002) introduces the distinction between public and private market, based on the availability of the information about the price of an artwork:
[...] auctions prices differ from gallery prices be-cause of their public character. Major auctions are covered by newspapers and magazines while their prices are publicly available. [...] By contrast, gallery sales have an exclusive, private character; details of a transaction, including the price, are difficult to find out for outsiders.7
Starting from these classifications of the art market, one can see that there exist several overlapping cases between them:
for example, an artwork in the secondary market could still have a private price if it was sold by the artist directly either to a gallery or to a collector; at the same time, an artwork sold by the artist which reached the market with the intermedia-tion of an aucintermedia-tion house has a public character also if it lays in the primary market. However, the mechanism of how the private price is formed in the primary market lacks of a theo-retical foundation as well as the role of gallery in this market has been insufficiently investigated by economists; as pointed out by Benhamou et al. (2002, p.264):
The economics of art galleries has widely been ne-glected by researchers because of the lack of infor-mation. In such an economic context, it is more
7Velthuis (2002, p.138). Notice that, as we pointed out above, Zorloni (2013) defines as primary market what Velthuis (2002) calls private market, while she defines as secondary market what he calls public market.
important than ever to open the black box of the
Our paper contributes to the literature shedding light on the private price-formation mechanism in the primary market, a sort of shadow market where the new artworks that have never been auctioned before are traded, and where the role of galleries is key. However, our analysis covers also how pri-vate price is formed in secondary and tertiary markets. Before proceeding to depict the functioning of the part of the market that stays at the foundations of the whole art market, we have to open the black box and explore the bargaining process used as selling method that stays behind the private price-formation mechanism.