Everywhere we look, we’re bombarded by price-cutting: you-pay-what-we-pay employee discounts, summer clearance savings, Presidents Week or Memorial Day or Labor Day or Black Friday sales, tax holidays, trade-in allowances and rebates for recent college graduates and military families. Everywhere, that is, except in art galleries. The prices for artworks that don’t sell aren’t lowered. Instead, those unsold pieces are quietly returned to the artist.
“Dealers work carefully to maintain consistency,” Penny Pilkington, co-owner of New York’s P·P·O·W art gallery, told Observer, asserting that “the integrity of the artist’s broader market” is at stake. “Sudden reductions or reactive price shifts can have unintended consequences: they may undermine collector confidence, create discrepancies across different bodies of work, or inadvertently signal a weakening demand where none actually exists.”
So, what works in the sale of appliances, clothing, automobiles and cellphones plainly doesn’t apply to works of art. But that’s not to say that prices for artworks are never lowered. It’s rare that anyone shopping at a higher-end gallery pays the list price for a work on display—or even one in the back room. Once a dealer sees that a prospective buyer is serious, a price is floated, followed by the familiar question: “Can you help me out with that?” or “What can you do for me?” That’s when the real negotiation begins. “Especially during tough times, I think dealers are more inclined to be more generous with discounts,” Manhattan gallery owner Nancy Hoffman told Observer, noting that 10 percent discounts for collectors and 15 percent for museums are standard—and can go higher. “The concept of building value into an artist’s price structure collapses if one arbitrarily changes that structure.”
A term economists use to describe a work of art is Veblen good, named for American economist Thorstein Veblen, referring to an item for which demand increases as the price rises and decreases when the price drops. Unlike buyers of Motorola phones or Whirlpool refrigerators, who may wait for a sale, art buyers tend to lose interest when the price goes down. “The economics of art is upside-down,” explained Robert Litan, an economist and senior fellow at the Brookings Institution, adding that “the select customer base that art appeals to” isn’t interested in paying less because paying more signals wealth and status. “The higher the price, the potentially more valuable it is.”
Indeed, there are buyers who only want to pay top dollar. In 2013, Steven Cohen, owner of SAC Capital Advisors LP, purchased Pablo Picasso’s 1932 painting La Rêve from casino owner Steve Wynn for $155 million—the highest price paid by a U.S. collector at the time. Back in 2006, Cohen had planned to buy the painting for $139 million, but Wynn accidentally tore the canvas with his elbow while showing off the work. The painting was restored, and although Cohen could have negotiated for a lower price, not everyone is looking for a bargain.
Economists refer to the relationship between price and demand as “elasticity of demand”—the idea that demand shrinks or expands with changes in price. But “demand for art is probably not elastic,” said John Silvia, former chief economist for Wachovia and now head of Dynamic Economic Strategy. He said price cuts work for mass consumer goods: “It brings people into the store. But if you have a product that is fairly unique or distinct, like art or jewelry, the answer is no, you don’t lower the price.” In a prestige market like art, cutting prices—say, dropping a painting from $40,000 to $30,000—can backfire. Gallery owners who do slash prices risk alienating two buyers: “You alienate anyone who bought from you in the past and now thinks he was cheated, and you create a doubt in the minds of future buyers about any work of art you sell. They wonder, ‘Am I being cheated now?’”
This upside-down logic generally applies to the primary market—artworks by living artists still producing new work. On the secondary market, and especially for deceased artists, prices can fluctuate—and discounts can run much higher. “Most of what I have is on consignment,” Debra Force, a Manhattan dealer specializing in American paintings, drawings and sculpture from the 18th to 20th Centuries, told Observer. “After six months that the work hasn’t sold, I tend to go back to the work’s owner and say, ‘Let’s try it at a different price’”—meaning lower. “If after another six months it still doesn’t sell, I might go back to the owner again and suggest another price.”
None of this is unusual. She noted that galleries typically maintain both an asking price and a projected sale price. Where things get more complicated is how that price drop is split. “I may shave my own commission on the sale and take less,” Force said. “Or the price drop may be shared by both the consignor and the gallery—or just the consignor.” Negotiations happen not only between dealer and buyer, but between dealer and consignor: Will the artwork’s owner accept less, and how much less? Both parties may want a higher price, but, Force added, “it’s better to keep selling than to sit and wait. I have to make an income.”
Summertime brings clearance sales to car dealerships—and also to Questroyal Fine Art on Park Avenue and 79th Street. From June through August, the gallery offers 75 to 100 paintings (all secondary market) at 15 to 50 percent off. “Summer is a slow period generally,” Brent Salerno, co-owner of Questroyal with his father, told Observer. “Our specials help us move inventory, raise capital and help us get ready for the fall.” That sale concludes August 31, but if someone wants to buy a work they saw during the summer after that date, “we will honor that lower price.”
Discounts are different from price reductions; one is negotiated privately (even if frequently), while the other is publicly declared. The amounts may vary significantly. Still, both strategies blur the line between listed price and actual value—and can leave buyers who pay full price feeling like chumps. Everyone knows there’s a price behind the price, creating a kind of gamesmanship that pulls both buyer and seller away from the artwork itself. “It’s a psychological thing for collectors to get a discount,” one dealer said. “If they don’t get one, they feel they haven’t been treated well.”
We live in the age of Amazon and Walmart, where everyone expects a deal. Bargain-hunters exist in the art world too—and the phenomenon is hardly new. Algur Meadows, the Texas oilman and art collector who infamously bought a slew of Old Master fakes, boasted of his ability to acquire art at half price or less. In the 1960s, he told a reporter, “They’d come down here with a Modigliani for $100,000, which I knew was the selling price anywhere. The next day, they asked $75,000, and I told them to take it away… Two or three weeks would go by. They kept telling me they had to leave town. Well, I said, I haven’t asked you to stay. If you want to sell it to me, I’ll give you $45,000. They took it.”
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