View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by RMIT Research Repository AN ECONOMIC ANALYSIS OF THE AUCTION MARKET FOR AUSTRALIAN ART: EVIDENCE OF INDIGENOUS DIFFERENCE AND CREATIVE ACHIEVEMENT Bronwyn Simone Coate B.Ec. (Hons.), Grad. Dip. Acc. School of Economics, Finance and Marketing College of Business RMIT University August 2009 ‘A thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy from the Royal Melbourne Institute of Technology’ CERTIFICATION I certify that except where due acknowledgement has been made, the work is that of the candidate alone; and the whole work has not been submitted previously, in whole or part, to qualify for any other academic award; and the content of the thesis is the result of work which had been carried out since the official commencement date of the approved research program. Bronwyn Simone Coate August 2009 (ii) ACKNOWLEDGEMENT There are a number of people who have each played invaluable roles in providing support and encouragement to help make this thesis possible. First and foremost I am most grateful and appreciative of the constructive advice and feedback given by my principal supervisor, Professor Tim Fry. I also wish to thank my second supervisor Professor Robert Brooks who has also provided invaluable guidance and support. Together Professor’s Fry and Brooks have been supervisors of the highest calibre and have contributed to making the process of completing this thesis a rewarding and enriching experience. They each have provided academic and scholarly insight to stimulate my thinking and approach to addressing the research questions raised within this thesis but even more importantly they have provided good humour and mentorship to encourage me as an emerging researcher. Completing this thesis would simply not have been possible without the support and commitment that my husband Laszlo has provided. To him I am most grateful and indebted especially for all the extra load he has shouldered so willingly and without complaint over the last 6 months in keeping our home in order and caring for our little boy Imre. Laszlo you are a star. To my son, Imre also I give thanks for his patience and his well intentioned offers hop on the PC himself to help mum finish her PhD. I would also like to thank my father, Bruce Coate for his never failing encouragement and support. Finally I would like to acknowledge my grandfather Midgley Ogden who remains an inspiration and who would have been proud of this achievement. Bronwyn Simone Coate (iii) CONTENTS 1.0 CHAPTER 1: INTRODUCTION AND OVERVIEW………………………. 4 1.1 Background…………………………………………………………………….... 4 1.2 Australian, Indigenous and Non-indigenous Art Markets………………………. 5 1.2.1 Defining Australian, Indigenous and Non-indigenous Art Markets……………. 6 1.2.2 Innovation in Artistic Practices and Technology Transfers Between Cultures…. 8 1.3 Factors Influencing Supply and Demand of Indigenous and Non-indigenous Art Markets……………………………………………………………………… 9 1.3.1 Indigenous and Non-indigenous Artists as the Source of Art Supply………….. 10 1.3.2 Demand in Global Markets for Cultural Products…..………………………….. 11 1.4 Research Objective……………………………………………………………… 12 1.5 Data Set Overview………………………………………………………………. 14 1.5.1 Size and Scale of the Australian Art Market……………………………………. 15 1.5.2 Artists……………………………………………………………………………. 20 1.6 Thesis Structure…………………………………………………………………. 24 2.0 CHAPTER 2: LITERATURE EVIEW………………………………………. 27 2.1 Introduction………………………………………………………………………. 27 2.1.1 An Economic Definition of ‘Art’………………………………………………... 28 2.1.2 Characteristics of Art as an Economic Good…………………………………….. 29 2.2 Auction Markets for Art…………………………………………………………. 31 2.2.1 Auction Theory………………………………………………………………….. 32 2.2.2 How Art Auctions Are Conducted………………………………………………. 34 2.2.3 Art Auctions and Art Market Efficiency………………………………………… 37 2.3 Art Market Studies from the Economics Literature……………………………... 41 2.3.1 Primary Market Studies………………………………………………………….. 41 2.3.2 Art Market Studies that Focus Upon Price Determination………………………. 42 2.3.3 Art Market Studies that Focus Upon Returns to Art Investment………………… 45 2.3.4 Australian Art Market Studies…………………………………………………… 51 2.3.5 Seminal Studies to Define and Refine Method: Hedonic, Repeat Sales and Trade to Trade Regression Approaches………………………………………….. 53 2.4 Contributions from Other Disciplines and Alternative Perspectives on Areas Related to the Research………………………………………………………….. 57 (iv) 2.4.1 The Effects of Globalisation on Art and Culture………………………………... 58 2.4.2 Views from Cultural Theory, Sociology and Economic Sociology on the Construction of Artist Reputation……………………………………………….. 62 2.4.3 Insights Towards Understanding the Cultural Significance of Indigenous Art to Indigenous People……………………………………………………………….. 63 2.4.4 How the Primary Market Operates for Indigenous and Non-indigenous Art in Australia………………………………………………………………………….. 64 2.5 Chapter Conclusion……………………………………………………………… 67 3.0 CHAPTER 3: DESCRIPTION OF THE DATA AND METHOD………….. 69 3.1 Introduction………………………………………………………………………. 69 3.2 Underlying Assumptions………………………………………………………… 70 3.2.1 Rational Expectations and Problems of Information Asymmetry and Imperfect Information………………………………………………………………………. 71 3.2.2 Price as a Measurement of Economic Valuation and a Framework for Understanding the Operation of the Australian Art Market…………………….. 73 3.3 Research Rationale and Research Questions…………………………………….. 75 3.3.1 Rationale for the Research……………………………………………………….. 75 3.3.2 Research Questions………………………………………………………………. 76 3.3.3 Contributions of the Research to Inform Policy Debate…………………………. 79 3.4 Description of Artist, Work and Auction Characteristics of the Data Set……….. 82 3.4.1 Artist Level Attributes of the Data Set………………………………………….. 83 3.4.2 Work Level Attributes of the Data Set………………………………………….. 89 3.4.3 Auction Level Attributes of the Data Set……………………………………….. 93 3.5 Methodological Approach……………………………………………………….. 98 3.5.1 Methodological Individualism…………………………………………………… 98 3.5.2 Hedonic Regression Method…………………………………………………….. 99 3.5.3 Repeat Sales Regression Method………………………………………………… 102 3.5.4 Trade to Trade Regression Method……………………………………………… 105 3.6 Chapter Conclusion……………………………………………………………… 106 4.0 CHAPTER 4: DETERMINANTS OF PRICE IN THE AUSTRALIAN, INDIGNEOUS AND NON-INDIGNEOUS ART MARKETS AND THE EFFECT OF ARTIST REPUTATION………………………………………. 108 4.1 Introduction……………………………………………………………………… 108 4.1.1 Background……………………………………………………………………… 109 4.2 Base Model 1: General Model…………………………………………………… 110 4.2.1 Characteristics Included in Base Model 1……………………………………….. 110 (v) 4.2.2 Results and Analysis of Base Model 1………………………………………….. 113 4.3 Base Model 2: Artist Identity Model…………………………………………….. 122 4.3.1 Characteristics Included within Base Model 2………………………………….. 122 4.3.2 Results and Analysis of Base Model 2………………………………………….. 126 4.4 Chapter Conclusion 134 5.0 CHAPTER 5: PERIODS IN AUSTRALIAN ART HISTORY AND THE PRICE OF ART SOLD AT AUCTION………………………………………. 137 5.1 Introduction………………………………………………………………………. 137 5.2 Period of Creation known Sub-sample Description…………………………….. 139 5.3 Model 3: Creation Period Known Model without Artist Identity……………….. 145 5.3.1 Additional Characteristics Included within Models 3 and 4…………………….. 145 5.3.2 Results and Analysis of Model 3………………………………………………… 147 5.4 Model 4: Creation Period Known Model with Artist Identity…………………… 151 5.4.1 Results and Analysis of Model 4………………………………………………… 152 5.5 A Ranking and Comparison of Creation periods and Artists in Relation to Auction Price Premiums…………………………………………………………. 159 5.6 Chapter Conclusion……………………………………………………………… 163 6.0 CHAPTER 6: THE RELATIONSHIP BETWEEN THE LIVING STATUS OF AN ARTIST AND AUCTION PRICE……………………………………. 165 6.1 Introduction………………………………………………………………………. 165 6.2 Living Status Known Sub-sample Description………………………………….. 168 6.2.1 Description of Additional Death / Living Status Characteristics Included within Living Status Models…………………………………………………………….. 173 6.3 Model 5: Living Status Model without Artist identity Specified……………….. 174 6.3.1 Results and Analysis of Model 5………………………………………………… 174 6.4 Model 6: Living Status Model with Artist Identity Specified…………………… 178 6.4.1 Results and Analysis of Model 6………………………………………………… 178 6.5 Application of Model 5: Living Status Effects between Famous and Lesser Known Artists……………………………………………………………………. 185 6.5.1 Results and Analysis of Model 5 Applied to a Restricted Sub-sample Defined on the Basis of Grove and Non-Grove Artists…………………………………… 185 6.6 Chapter Conclusion……………………………………………………………… 187 (vi) 7.0 CHAPTER 7: RETURNS FROM INVESTMENT IN AUSTRALIAN ART SOLD AT AUCTION………………………………………………………….. 189 7.1 Introduction………………………………………………………………………. 189 7.2 Returns Calculated from the Hedonic Approach………………………………… 191 7.3 Repeat Sales Sub-sample Description……..…………………………………….. 194 7.4 Returns Calculated from the Repeat Sales Approach……………………………. 206 7.5 The Sensitivity of Art Returns Measured from the Trade to Trade Regression Approach…………………………………………………………………………. 213 7.5.1 Sensitivity Comparisons Across an Expanded Set of Market Segments Defined in Relation to Selected Artist and Work Attributes……………………………… 213 7.5.2 Sensitivity Comparisons Across Different Artists Grouping Based Upon Levels of Turnover and Trade in Works………………………………………………… 217 7.5.3 The Effect on the Sensitivity of Art Returns when an Artist Dies between Trades……………………………………………………………………………. 220 7.6 The Place