Outside Perspective: Art and the Dismal Science

Outside perspective brings insights from experts. This post comes to the RedDot community from Andrew Currie, an economics instructor, and painter based in California.

 

Many years ago, I was in a Nevada County coffee shop where a couple had just installed an exhibit of cubist-surrealistic paintings. They then sat down on the sofa opposite me and started to draw up a price list. The woman wanted to charge high prices, based on the argument that rich people buy art. Her male partner countered that there were many other people exhibiting in the area, in both coffee shops and nearby galleries, thereby explaining his view that they should keep prices low.

Who was right?

It is hard to say since there is an economic justification for both points of view. The purpose of this brief article is to present some economic concepts that readers might want to think about in pricing their works; not in galleries or juried art shows, but in coffee shops, restaurants, Etsy, and other venues geared toward the low-end of the price scale. For the sake of brevity, only four concepts will be addressed; three relating to demand, the other to supply.

Markets characterized by product differentiation – as is the case with the art market – are called price searcher markets. Why? Because sellers know that there is a tradeoff between price and the quantity demanded for their product, but they don’t know the specifics of that tradeoff. It is because of this imperfect information about demand that sellers usually have to search for good price points for their product, often through experimentation. The implication is that aspiring artists should be willing and able to be flexible in pricing their works. Specifically, they should listen to the market and respond accordingly instead of setting rigid prices based on what they would like to receive rather than what the market is actually offering.

Another demand issue relates to the comment made by the female Nevada County artist who noted that rich people buy art. This is because artwork is a luxury good; one in which a person’s spending on that item will be greater than proportional to a change in income. For instance, if my income rises by 10 percent, but my spending on artwork increases by 20 percent, that would make art a luxury good, which, in fact, it is. The luxury-good aspect of art is important, but not so important as to override price elasticity.

The price elasticity of demand is nothing more than a measure of consumers’ responsiveness to prices. If consumers are very price-sensitive, the item would be described as being price elastic over that price range; if they are relatively unresponsive, their demand would be price inelastic. A significant point to realize is that the availability of substitutes is the primary determinant of price elasticity: the greater the number of substitutes, the greater the price elasticity of demand. The significance of this point is that if you are in a market with a lot of other people selling works of a similar quality as yours, it might be necessary to keep your prices low enough to compete with those other sellers. This is not to suggest that a low price will necessarily sell a work; I’m instead suggesting that a seller should take a look at what other artists are charging for similar works in the same venue, and not stray too far above or below them.

Returning to the Nevada County artists, whose side would I line up on?

The male painter’s. The reason for this is that luxury goods are often bought by the wealthy, but there is a secondary aspect of luxury goods that also has to be considered: they have a lot of substitutes. It is the prevalence of these substitutes that explains why most luxury goods are price elastic with respect to demand. Quite often the substitutes will be obvious, other times, not so much.

For example, suppose you are a landscape painter who works in oils. What are substitutes for your works? Oils in different genres? Certainly. Landscapes in different media. Definitely. They would also include any number of other luxury goods of a similar price. Thus, other substitutes could include a sculpture, a great bottle of wine, a good meal at a restaurant, a massage, or any other extravagance that we might not initially think of as a substitute for a landscape in oils. When looked at in this light, it should be realized that you are not only competing in the art market itself, but also the highly competitive market for luxury goods. It is for that reason that the demand for most luxury goods is price elastic; thereby giving support to the male painter’s suggestion to keep prices competitively low.

Going from demand to supply, there is one critical issue that aspiring artists should be aware of to figure out their minimum sales price for a work: the seller’s reservation price. The seller’s reservation price is the minimum price that would induce an artist to supply an additional piece into the market. Imagine I want to earn $20 an hour for a small painting that takes me four hours to paint. The cost for the frame, canvas, and paints is $35, shipping (including the packaging) costs $20, and the work is sold online by a site that charges a 10 percent commission. My reservation price would be $150, based on the following: $150 (sales price) minus $15 (10 percent commission) = $135, which is equal to $80 (labor) plus $35 (frame and materials) plus $20 (shipping). It should be noted that the seller’s reservation price only looks at half the equation being that it ignores demand; however, if a painter wants to set a floor which he or she cannot go below and still receive his or her minimum wage rate, calculating the seller’s reservation price would be a good point of departure.

Economics has been described as the dismal science. In some respects, it is an apt description, but when it comes to pricing something as subjective as artwork, it is not a science – it is an artform unto itself.

Consequently, for aspiring artists, it is imperative that they give as much thought and attention to the pricing of their work as they do to its creation. Should they do so, they will give themselves a better chance of becoming professional artists rather than starving ones.

About the Author: Andrew Currie

20 Comments

  1. “The male painter’s” comment sunk me. The art market is inarguably dominated by male-produced art to the point where the author gave no second thought to using this exclusive terminology. Male artists have the luxury of taping a banana to a wall and selling it for $120,000… or floating a lamb in formaldehyde for 4 1/2 million… unquestioned art and worth. Female artists, I fear, will never share that space in the art world.

    1. I agree that the art market may be unfairly dominated by “male dominated art” but in the authors defense these were people he overheard in a cafe, and the female had one opinion and the male the other. In this case the economic view the author agreed with more happened to be the man.

      1. Thank you, Kay. I am in a dark place in regard to lack of representation in galleries and museums… so I tend to zero in comments like that, and go numb toward the whole. I’ll cut Mr. Currie a bit of slack.

        1. Thank you for cutting me some slack. I’m sorry I hadn’t given the gender issue any thought; however, your post has prompted me to realize that it is something to be considered. The point you raise about the gender issue is a valid one, as suggested by the title of an article by Eileen Kinsella in Artnet News (November 29, 2017): “A New Study Shows that Most Artists Make Very Little Money, With Women Faring the Worst: The Myth of the Starving Artist is Anything but a Myth.”

    2. If you read the article, the art was the work of a COUPLE. Male and female TOGETHER.

      Yes, I know. The art market is so dominated by single-artist works that you gave no second thought to assuming the art was not the product of a cooperative.

      You still committed the same crime you accused the author of.

  2. Jason, this is one of the worst articles I have read on your postings. The academic jargon was interesting until the example. The $150.00 price is a wholesale price, not a retail price. And not even that! What about including the costs of studio space (at home or elsewhere), electricity, water, telephone, equipment replacement, acquiring materials used, time spent on record keeping, tax reporting, sales responses and marketing, product development and education, a prorated health care plan? And probably things I forgot. Better to listen to a genuine experienced business person than a genuine philosophical economist in my opinion.

    1. When writing the article, I didn’t want it to get overladen with economic terms and jargon. such as the distinction between the short-run and long-run, fixed costs, variable costs, shutdown points, etc. However, given the very valid points you raise, I can address them here.
      The crux of the article refers to the artist’s seller’s reservation price in the short-run – the absolute minimum of what can be charged for that work. You are correct that it does ignore other important costs, with the primary one being the fixed cost of rent. The assumption that is made in economics is that in the short-run fixed costs, such as rent, cannot be avoided.
      For instance, if I have a one year lease on a studio, where I am paying $500 a month for it, the sales price of my works should cover that cost – as well as the others you mentioned – as well as the variable costs in producing that canvas.
      Lets say my only fixed cost is that $500 a month in rent. If I sell no canvases, then my loss for the month is $500. Using the example from the article, if I can sell that canvas for $151, I’ll cover the stated $150 of variable costs, leaving one dollar to go toward rent. My loss for the month would now be $499 for the month. Yes its a loss, but it is a smaller loss than if I didn’t sell that work. If, on the other hand, the sales price is $149, then not only would I be bearing the $500 loss on rent, but also the one dollar loss stemming from not covering my $150 of variable cost; thus my loss for the month would be $501. The point at which I would be indifferent between producing or not producing that canvas would be a sales price of $150 – the bare minimum price that would cover the most obvious variable costs, assuming given fixed costs that cannot be avoided in the short-run.
      As for your point about the inclusion of all the other costs not mentioned in my article – you are right, they should be included in the creation of the sales price. That was my bad for not making that clear – all I was dealing with was the absolute minimum that a canvas might be sold for so as to minimize losses. For those willing to delve into bean-counting, they might do a cost allocation of overhead to each canvas for things like water, electricity, etc. , where those costs could also be factored into the seller’s reservation price.
      The big picture is this: a canvas shouldn’t be sold if the sales price cannot cover its variable costs of production in the short-run, but in the long-run, a painter should leave the industry if the sales price of his/her canvases cannot cover all costs, both fixed and variable, including a normal rate of return.
      It should be noted that when I wrote the early draft of the article I addressed such things, but thought that it was getting too technical, so I scaled it down. In doing so, I obviously edited out things that should have been left in.
      In terms of the retail/wholesale issue, the example assumed the person was selling through the internet, perhaps though Etsy, where the $150 was the retail price, with the wholesale price being $135 (the $15 difference going toward sales costs such as processing fees and the art platform’s sales commission).
      In rereading the article, in the wake of reading your post, I’m amazed that I edited out the original section’s discussion of the distinction and relevance between the short-run and long-run. In retrospect, I realized that I sacrificed clarity and substance for brevity. Should I ever write another article, I’ll be wary of repeating that mistake.

  3. Any artist who does not price from the supply-side argument (for simplicity, time and materials plus profit), is, in my opinion, a hobbyist, not a business person. As a retired entrepreneurship professor and business owner, now artist, price increases over time may be based on demand (market success), particularly because production capacity cannot be expanded for most original fine art. Of course one must invest some time (and lower wage) when starting out; but if you are not breaking even at least or making a small profit, you would be out of business in the real world very soon. Also, while I totally agree that substitutes for art include things like dinner out, they also include things like reupholstering furniture or home improvement–i.e., they’re really about discretionary income: how does someone want to spend their surplus money? Some people could care less about original art. This is one reason why educating and communicating with the market is important. Establishing a relationship helps create demand.

    1. I am a hobbyist, not a professional painter, with my article reflecting that perspective. Though it wasn’t made clear in the article – which it should have – the point being addressed was the ABSOLUTE MMINIMUM price a hobbyist might charge for a canvas, not the price that they SHOULD ask for. For instance, on Etsy, there are sellers who periodically reduce the price of their canvases in an attempt to sell them. My article addressed the “sellers reservation price” – the absolute bare minimum price that a seller should be willing to receive, given the article’s assumed costs. [The clarification of that issue is found in my response to Mr. Viehman’s post].
      Had I been heads up, I would have prefaced the article with a notice that it was geared toward fellow hobbyists wanting to test the art market via a low-risk strategy of selling canvases on the internet – but I’m not, so I didn’t.
      As for the issue of demand, I would readily acknowledge that my article completely ignored it, primarily for the sake of simplicity. In his Affluent Society, Galbraith pointed out that demand can be created through marketing, with your reference to “establishing a relationship” having the same effect. While I think that demand can be create to some extent, I think it is a tall order to generate demand for most people who want to sell their work on the internet – though I do think its possible for those who are represented by an established gallery, or are willing to sell at art shows and fairs. Yet that is only my take based on what I have read in books and on the internet; again, a reflection of my being a hobbyist at this point.

  4. Art, the making of and collecting of, starts with a visceral reaction which triggers the emotional interest as I see it. How else do you explain the artist committing energy. will, and materials to a particular idea?
    This, it seems, lies outside economics but is an essential feature.
    We artists should strive to be as honest as we can be in a world that contains more than its share of charlatans. Some of the notable examples of outliers press a different agenda. Most of us don’t compete there.
    As to which way to market in a coffee shop or any other non-art spot. I would want to know what the expectancy of the clientele is regarding the encounter with art in that setting.
    I have yet to see sales from work in restaurants, coffee shops, etc.
    I’m guessing it requires a would-be collector to get into the same space as the art work which more often than not invades someone else’s space. That is a complicated social issue in most cases.
    I don’t know how expectation fits into economics but it seems it fits into the art market which in reality is still a cottage industry.

    1. Thank you Stephen for touching some of the issues concerning Fine Art, which creating it and selling it are two different worlds. Artists create for reasons that are seldom because they need to make a living from the art. Most are making a living in different areas, like through teaching. I have been in the field for a long time and can only say that art is a general category label, for a lot of fields and generalizing it, is a very bad idea!!!

    2. A “visceral reaction” is a perfect way to address our interaction with art. Decades ago I went to an exhibit in which there were quite a few big name artists, yet for me there was only one work in the exhibit: a church interior by a painter that the catalogue referred to a “minor master” in Middelburg: Daniel de Bliek. It was a good sized canvas in which de Bliek’s use of chroma, value, negative space, and perspective all drove the eye right to the church’s altar. I was memorized by it; standing in front of it and being awed by its simple, but brilliant beauty.
      It was largely because of that one canvas and my “visceral reaction” to it that I believe that if a painter can only paint one truly impressive work in his or her lifetime, that is a life well lived. I have not yet produced such a work, however, recent improvements in my glazing technique make me think that somewhere down the line I might. As for sales issues, they are only relevant in the sense that they might enable us to justify shifting hours from a day job to our passion – one that might lead to that one impressive work.
      In terms of selling in alternate venues. In Nevada County there was a barista who sold one of her canvases for $1,500 at Cafe Mekka. The sales price was impressive, but so was the timing of the sale: it was in the middle of the Financial Crisis of 2008. Also in Nevada County, I used to chat with two coffee shop owners during the slow hours in the afternoon. On two occasions, one of them mentioned works that had been sold, where her commission from the sales was modest, but still helped offset her rent. The other mentioned that people often inquired about larger works, however, it was the smaller less-expensive ones that actually sold. She also said that it was unusual for someone to exhibit in her coffeeshop with nothing being bought. There is an Empty Easel article about selling through coffee shops by Steff Metal

  5. I enjoyed the discussion on supply and demand, however I do have an issue with the equation. I’ve coached way too many artists who priced their art according to the equation above, and then wonder why they can’t make a go of their business.

    I believe—in order for artists to survive and grow their business—that they need to treat their art as a business rather than simply an hourly job. For this reason, there is more to the equation for Reservation Price:

    Specifically, it needs to include Fixed Costs (to pay for photo equipment or a photographer to take high quality photos of your work, website fees, brushes, easel, tax accountant, Photoshop subscription etc) and Profit Margin (if you don’t include this, then you can’t afford to buy better materials, or self-publish that table-top book, or hire someone to help you market and ship). Here is my equation for ‘Reservation Price’ (I call it Minimum Price):

    Minimum Price = Base Earnings + Commission + Overhead + Profit

    Here are the calculations for each of the above:

    Base earnings = Hours x Hourly Rate + Cost of Materials
    Commission = Base earnings x Commission rate
    Overhead = [Base earnings + Commission] x Overhead Rate (1)
    Profit = [Base earnings + Commission] x Profit Rate (2)

    (1) You can calculate Overhead Rate using your ‘Supplies Used and Consumed’ figures from your tax returns, or simply tack on a percent

    (2) Profit Rate is subjective and can be fudged up or down based on what the market will bear

    1. As mentioned in response to other comments, it is my bad for not clarifying things and over editing an earlier draft of the article. The article was implicitly geared to those casual sellers on the internet who cut their prices in the hopes of selling their work, with the argument being made that it should not go below their variable cost of production. That said, anyone who hopes to sell works as a source of income should, indeed, make sure they cover their fixed costs and overhead, as well as their variable costs.
      In watching quite a few Youtube tutorials on the subject, some artists have their implied hourly wage being used by itself, while others will include a wage rate and a given profit margin as well. Curiously, quite a few artists base their pricing on a work’s dimensions – so much per square inch, with that price per square inch figure being based on their cost structure (rent, profit, hourly wage etc). From what I have read on the subject, it seems like pricing art is as much of an artform as producing it.

  6. Mr Currie’s insight on the pricing of art work certainly gives an artist much to ponder. I refer to this issue and just about any other topic concerning the art market as “slippery slopes”.
    The discrepancy between high-end artists who sell for huge sums out of high-end galleries (and am refering to living artists) and low-end artists who sell thru social media platforms, art walks/fairs etc. for comparison next to nothing I find complex & perplexing, but nevertheless incredibly interesting.
    I believe the way art prices fluctuate from huge to modest to low is a reflection of the economics of modern civilization/capitalism. Unfortunately there is no science to determine great art from lesser than great. That is why I think much emphasis is put on productivity – it is one of the more viable aspects for determining an artist’s work/value – but, again, a slippery slope.
    Thus, I am of the opinion that any artist who has created a body of work that encompasses hundreds/thousands of pieces should aim high and demand high prices for his/her work because the price differential between high/low is artificial.
    Another reason for selling to high-end $$$ collectors is the work is more likeky to be better preserved and a more likely candidate for eventually winding up in the vaults of an art conservatory/museum. And after all isn’t that the main prize for an artist’s work – preservation thru time for future generations to enjoy, wonder, marvel at the accomplished masterpieces.

    1. There is a small but insightful book by Kenneth Clark, “What is a Masterpiece?”, that echoes your comment that “there is no science to determine great art from lesser than great.” While there may not be a science for it, I do think that we can evaluate the quality of art though our natural sense of taste. Specifically, If a viewer sees an artwork and is immediately and intuitively struck with a visceral awe of it, that, in my book, is great art – maybe not for art critics, art historians, or society taken as a whole – but certainly for that one viewer.

  7. This article — and all the comments were all excellent, including the ones that disagreed with the author. Very interesting and valuable to have an economist weigh in on art pricing. Also interesting and valuable to read the comments of us baffled artists (me included in that group). I think there is no one-size-fits-all guidance on pricing that will definitely work. People’s buying inclinations and habits and the overwhelming number of other decision-influences simply defy the prospect of having a reliable answer. So, the question of pricing remains a crap shoot in my opinion.

  8. An artist needs to take a look at how other artists in the area are pricing their work. Extremely low looks amateurish; extremely high looks pretentious. (This makes one ask what “extreme” means!) To earn a living, an artist needs to start low so that there is room for growth.

    Prices in rural areas (except gentrified rural areas) will be lower than prices in a city; prices at an art fair will be lower than prices in a gallery. Professionals keep their prices the same no matter where they are showing and (we hope) selling.

    Calculating prices with insistence on earning a decent hourly wage usually makes a beginner price himself out of the market. It takes awhile to be earning a decent hourly wage, and without unwavering commitment to the dream of being a professional artist, the discouragement can take its toll.

    It comes down to just getting real about where you live and who your customers are.

    1. Just being an amateur painter, I have never put a painting up for sale, but I have spoken with many artists who have, with little success in doing so. In listening to them, as well as reading posts on the internet, it seems like so much of the disappoint that people encounter in selling artwork can be traced to them not following your lead of “getting real” – especially in terms of their perceived demand for their work. Granted, that is just my perception, but I do truly think that not “getting real” is the crux of why there are so many starving artists.

  9. Look at the venue . The author is sitting in a coffee shop, where everything will be priced far lower than any artwork. This isn’t a five star restaurant where reservations are a month out. He is absolutely clueless about what goes into being an artist, and could be seen as someone who doesn’t value art. Producing a painting and pricing is not like developing price points on a latte. The artist needs to find markets where a price point will allow the artist to make a profit as well as the gallery representing them.

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