The chapter discusses the public good aspects of the arts which pose a dilemma for pricing policies by arts organisations and for government policy. Discriminatory pricing and Ramsey pricing are proposed as the basis for welfare maximisation and the parity-pricing formula is presented as a solution.
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William J. Baumol
Orley Ashenfelter and Kathryn Graddy
Works of art and culture are sold by many means. These include transactions between dealers and their customers, auctions with open outcry, Internet auctions and, occasionally, sealed-bid auctions. However, the standard procedure for establishing art valuations for the most expensive works is still most commonly the English auction, where prices ascend in open bidding. This chapter describes how art auctions really work, together with the state of competition between auction houses. For expensive art, competition is dominated by the duopoly of Christie’s and Sotheby’s. The chapter proceeds to describe various interesting features of art auctions, including the declining price anomaly, whether or not auctioneers provide accurate information, and anchoring effects in art auctions. The public auction system provides a valuable method for setting and determining values; it is probable that the inability of auctioneers to capture a significant part of the benefits of the information they produce leads to less use of the auction system than is optimal for society.
In a number of other respects, art markets deviate dramatically from textbook theory of perfect markets, and demonstrate a number of striking anomalies: transaction costs are high, preferences are socially shaped, and trust relationships are crucial owing to widespread information asymmetries. This entry details how art markets are segmented (commercial versus non-commercial, primary versus secondary, local versus global), how competition with art markets is structured and how dealers try to make markets for the art they have on offer. However, the way art is traded may be about to change: owing to the winner-take-all structure of the market, the dramatic rise of art fairs over the past two decades and the changing buying habits of dealers’ clients, increasing numbers of dealers are closing their doors.
Joëlle Farchy and Juliette Denis
Artificial intelligence has experienced unprecedented growth since the 2010s, owing to the combined effects of the rise in computing capacity and scientific research, and is the subject of public debate. Cultural industries have been among those impacted by the explosion of data available to feed artificial intelligence algorithms. At the initiative of researchers, artists, start-ups or large groups, artificial intelligence has been used at all levels of the value chain. The exploitation of data thanks to algorithms gives new impetus to the ambition to make the appropriate investment decisions, and to support, or even replace the usual human intuitions and expertise by presumably objective analyses of the determinants of the success of a work or an artist. Whether to analyse market trends or predict the future, professionals’ decision-making tools are based on mechanisms specific to each sector. Examples from the music, audio-visual and art market sectors illustrate the different objectives that can be pursued.
Artists’ earnings and labour market behaviour have been studies for a long time in cultural economics. The research has mainly been concentrated around artists’ income conditions, how artists behave on the labour market and structural conditions in this particular labour market. The important questions are, is the artists’ labour market different from other labour market? How is it different? Why is it different? The chapter focuses on important topics, such as: the definition of artists, the low average income and skewed income distribution, the work-preference model, the superstar model, the role of education and the excess supply of artists. Finally, policy measures concerning artists’ labour markets are discussed.
Victor Ginsburgh and Clare McAndrew
The artist’s resale right (ARR) is the right enjoyed by the creator of an original work of art and their heirs to an economic interest in the resale of their work in the secondary market. A uniform system of ARR was introduced in the European Union (EU) in 2006 to address a perceived competitive distortion within the internal art market caused by the uneven application of the right and its non-application in some member states. Despite emotive arguments in its favour, objective analyses of the economic consequences of the right show that it is inefficient and does little to help artists most in need of support. The ARR can not only worsen the position for the contemporary artist, but could also have a detrimental effect on international art trade for the states in which it is introduced. Auction data from 2002 to 2018 shows the ARR has been ineffective at levelling the competitive playing field within the EU or redistributing sales, but has potentially been a factor contributing to the decline of the EU’s global share. It also shows that the right is severely anti-redistributive, with over 95 per cent of the royalties accruing to the top 50 artists in each country analysed.
This chapter considers various legal rights held by artists, including protections for freedom of expression, copyright and fair use, moral rights and droit de suite. The economic approach is adopted, which looks to the efficiency properties of the allocation of rights, and to their protection through property, liability and inalienability rules, and policy considerations.
Radio and television have been important features of modern life. For the twentieth century, these mass media transmitted information and entertainment electronically, complemented by print media and cinema. This all continues, but the digital revolution is changing the landscape substantially. New information and entertainment pathways have expanded the choices of users, but the process also thereby creates new challenges. This chapter examines the economics of traditional broadcasting, the changes being wrought by new technology, and the changing policy settings being obliged by these changes. It discusses the distinctive features of the broadcasting sector and the implications for policy settings through law and regulation, and through public broadcasting and finance. The difference that is made to the sector when online platforms transmit information and entertainment too, and what this means for the associated policy settings, completes the analysis of the chapter.
The notion of a business model has recently emerged strongly in economics and management. One of the reasons for this is the development of the Internet, which has opened up new opportunities to build innovative offering formats and to ensure dematerialized, globalized and extended transactions. The development of information and communication technologies has also changed managerial and competitive strategies. They have helped to redefine how goods and services are made available and how they are produced, through their flexibility and modularity. These developments have stimulated the emergence of new forms of innovation in all sectors, particularly in the configuration of business models: diversified pricing forms, value-added service packages, new production and distribution methods, and new relationships with consumers. The chapter reviews the current state of business models and the various components that structure them. Far from representing only temporary phenomena of disruption, the dynamics at work suggest, on the contrary, permanent and omnipresent factors of change. The ever-changing redefinition of contents, offerings, consumption patterns and business models are now the structural element of the cultural economy.
This chapter describes in detail the main characteristics of the contingent valuation (CV) method. This method aims to estimates the economic value of non-market goods in monetary terms. Contingent valuation is a stated preference (SP) method based on individual preferences declared in surveys where hypothetical market is mimicked. We consider the circumstances under which it can be preferable to other methods in the valuation of cultural assets. The main issues of the theoretical debate on the pros and cons of CV are summarized, and a short review of the main fields of application of CV studies on cultural heritage is reported. Moreover, we trace out the future of the research on CV, from theoretical and applied points of view. Finally, we discuss the cultural policy implications of recurring to CV and other SP models.