Everywhere we look, we’re bombarded with price cuts: pay-what-you-pay employee discounts, summer clearance savings, Presidents’ Week or Memorial Day or Labor Day or Black Friday sales, tax holidays, business incentives and discounts for college graduates and military families. Everywhere, that is, except for art galleries. Prices for works of art that do not sell are not discounted. Instead, those unsold pieces are quietly returned to the artist.
“Dealers are working very hard to maintain consistency,” Penny Pilkington, co-owner of New York’s P·P·O·W art gallery, told the Observer, arguing that the “integrity of the artist’s broader market” is at stake. “Sudden reductions or active price changes can have unintended consequences: they can undermine the confidence of collectors, create tension in various trade unions, or indirectly show weak demand when there really isn’t one.”
Therefore, what works for the sale of appliances, clothes, cars and mobile phones obviously does not work for works of art. But that does not mean that the prices of works of art are never reduced. It’s rare that anyone buying from a high-end gallery will pay the price of a list of works on display—or one in a back room. When the seller sees that the potential buyer is really serious, the price is floated, followed by the usual question: “Can you help me with that?” or “What can you do for me?” Then the real discussion begins. “Especially in tough times, I think dealers like to be more generous with discounts,” Manhattan gallery owner Nancy Hoffman told the Observer, noting that 10 percent discounts for collectors and 15 percent for museums are standard — and could go up. “The idea of building value into the price of an artist falls apart when one automatically changes that structure.”
The term used by economists to describe the work of art is Veblen is goodcoined by the American economist Thorstein Veblen, referring to a commodity in which demand increases as the price increases and decreases when the price decreases. Unlike buyers of Motorola phones or Whirlpool refrigerators, who may wait for a sale, art buyers tend to lose interest when the price drops. “The economy of art is upside down,” explained Robert Litan, an economist and senior fellow at the Brookings Institution, adding that “a select customer base that attracts art” doesn’t mind paying less because paying more shows wealth and status. “The higher the price, the more valuable it is.”
Indeed, there are such buyers only you want to pay top dollar. In 2013, Steven Cohen, owner of SAC Capital Advisors LP, purchased a 1932 Pablo Picasso painting. The Reve from casino owner Steve Wynn for $155 million—the highest price paid by a US 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 the work. The painting was returned, and although Cohen could negotiate a lower price, not everyone wanted a bargain.
Economists refer to the relationship between price and demand as “elasticity of demand”—the idea that demand decreases or increases with changes in price. But “the demand for art is probably not the same,” said John Silvia, Wachovia’s former chief economist and now head of Dynamic Economic Strategy. He said the price drop works for high-priced goods: “It brings people into the store. In a prestige market like art, reducing prices—say, dropping a painting from $40,000 to $30,000—can backfire. Gallery owners who charge low prices risk alienating two buyers: “You’re alienating anyone who bought from you in the past and now thinks they’ve been duped, and you create doubt in the minds of future buyers of any work of art. which you sell.” They ask themselves, ‘Am I being cheated now?'”
This downward thinking often applies to the primary market—the artworks of living artists who are still producing new work. In the secondary market, and especially for deceased artists, prices can fluctuate—and discounts can go very high. “A lot of what I have is consigned,” Debra Force, a Manhattan dealer who deals in American paintings, drawings and photographs from the 18th to 20th centuries, told the Observer. “After six months of a job not selling, I usually go back to the job owner and say, ‘Let’s try it at a different price'”—meaning lower. “If after another six months it doesn’t sell, I might go back to the owner and raise another price.”
None of this is unusual. He noted that galleries often keep both an asking price and an estimated price. Where things get more complicated is how that price drop is broken down. “I might take away my own commission from the sale and take a little bit,” Force said. Or the price drop may be shared by both the consignor and the gallery—or just the consignor.” Negotiations take place not only between seller and buyer, but between seller and consignor: Will the owner of the artwork accept less, and how less? Both parties may want a higher price, but, Force added, “it’s better to keep selling than to keep waiting. I have to make money.”
Summertime brings clearance sales at auto dealerships—and at Questroyal Fine Art on Park Avenue and 79th Street. From June to August, the gallery offers 75 to 100 paintings (all secondary market) at a discount of 15 to 50 percent. “Summer is a slow time in general,” Brent Salerno, who owns Questroyal with his father, told the Observer. “Our specials help us move inventory, raise money and help us get ready for fall.” That sale ends Aug. 31, but if someone wants to buy a work they saw this summer after that date, “we will honor that lower price.”
Discounts are different from price reductions; one is discussed privately (even if often), while the other is publicly announced. Prices can vary greatly. Still, both strategies blur the line between the listed price and the actual value—and can leave buyers who pay full price feeling like chumps. Everyone knows that there is a price behind the price, it creates a kind of game that pulls both the buyer and the seller away from the artwork itself. “It’s a psychological thing for collectors to get a discount,” said one seller. If they don’t get it, they feel mistreated.
We live in the age of Amazon and Walmart, where everyone is waiting for a deal. Bargain hunters exist in the art world as well—and this phenomenon is not new. Algur Meadows, a Texas oil and art collector who illegally bought dozens of Old Master fakes, boasted of his ability to find art at half price or less. In the 1960s, he told a reporter, “They would come down here with a Modigliani for $100,000, which I knew was the selling price anywhere. The next day, they asked for $75,000, and I told them to take it… it would be two or three weeks. They kept telling me they had to leave town. I’ll give you $45,000.”
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