The art market is considered by many to be the last great, unregulated market. However, this remains an unsettling fact; the market is plagued with information asymmetry, quasi-monopoly institutions, and high concentrations of wealth that result in paintings reaching $179 million at auction. Unmasking the nature of where prices, in such a network based market, come from is an important step in establishing a true market equilibrium of prices and paintings that can encompass the innovation and inherent information of each piece of artwork. Here, it will be established the artist functions as a brand, consumer networks, along with conspicuous consumption, and a general formula for exhibiting artwork drive prices in the art market. These factors create the disparity between prices and inherent value. Once uncovered and established, the implementation of blockchain technology can create a truer market that is driven by more truthful supply and demand components. This blockchain technology can be applied to the art market to facilitate a more truthful market equilibrium for artworks and their corresponding prices; in doing so, the establishment of a ‘new art market’ can respond to global macroeconomic environments of interest rates, by aggregating individual preferences, and serve as a model for transparency in the market.


It is important to begin by establishing the artist as a brand. Elisa Hernando and Sara Campo tested collectors’ willingness to buy art based whether or not the artist’s name was known.It was discovered, not surprisingly, that the collector was more willing to pay more when the artist was known. This creates an important base of collecting artwork that will serve as a platform for consumer networks and conspicuous consumption to operate. Through their econometric interpretations, they discovered the artist’s name functioned as brand equity among consumers. For example, 55% of respondents agreed the appraisal value of the art, when the name was known, was under €10,000; when the name was not known, 42% of respondents said the work was worth more than €10,000. This fact illuminates the information that is held within knowing the name, or brand, of an artist. The study highlights the information that is inherent to the name of the artist and only quantifiable if it is globally accepted, or known as a brand; as such, the current art market operates on this information asymmetry which allows ‘tastemakers’ to brand artists and establish their role as important artists.


Ultimately, collectors’ willingness to buy artwork, that has been branded, creates inequality within the market for information. The establishment of an artist as a brand reduces the market uncertainty and allows for the work to serve, not only as investment to ward off macroeconomic factors, but also consumption Although it is the brand that operates in this context to drive prices, the access to information here represents the possible gap in the current equilibrium and the possible equilibrium that would exist with a more true realization of prices.


The next factor that drives prices in the art market expands upon the artist as a brand and incorporates the ideas of consumer networks and conspicuous consumption. Here, the purchasing of artwork serves as a show of wealth and signals success. With art as conspicuous consumption, the value that it  provides extends beyond the intrinsic monetary value, to one that is non-monetary and represents a certain utility for possession. Therefore, the search for status and, as mentioned before, the imperfect information within the networks puts consumers at a disadvantage as their individual demands surges to reach greater social successes. In a search for social status, collectors are willing to pay higher prices as they care about how others view their purchases. To expand upon this, collectors will take on additional costs, pay higher prices for works, as it increases their social status. Social networks operate within consumer networks and the theory of conspicuous consumption to drive prices when collectors deem artwork a show of wealth and a means to reach high social status.


A collectors’ willingness to pay for works operates as a function of fad behavior that creates a demand among collectors for ‘hot/branded artists’; this fad behavior increases the willingness to spend and demand of collectors, pushing prices higher. Additionally, herd-like behavior and conformity play off of this idea. Collectors conform to what the market suggests. Individuals with access to imperfect information are influentiable and promote artists they deem worthwhile. This creates a precedent for monopoly power that allows those with information to establish markets that individual consumers conform to out of social desire, consumption opportunities, or the alike.


Consumer networks are driven by a combination of forces: conspicuous consumption, herd behavior, and a desire to show wealth. These factors create a high demand within the art market and aid to explain where prices are derived from.


Finally, a general formula within the gallery network of the art market suggests that displaying, creating, and transporting expenses drive prices in the primary art market, works directly from an artist’s studio. By many accounts, there is a 50/50 split between artist and gallery when a work is sold. With the 50/50 split as precedent, material costs, shipping expenses, and the overhead required to present a work determine what the gallery must earn if it is to break even on selling a work. From knowing what the gallery needs to break even, a price can be set that includes the gallery’s share and the artist’s. The gallery’s opportunity cost of exhibiting a work greatly impacts the price they must charge for a work, since artworks must take up physical space if they are to be seen and gain recognition. Again, information asymmetry is evident, and what the gallery charges is often subject to the 50/50 split, the branded artist, and consumer networks. This drives prices as the opportunity cost of showing artwork increases with higher rent costs, more exoitc materials, and the alike.


As has been established, the art market, in its current climate, operates around imperfect information that wealthy collectors capitalize on to purchase branded artists. These artists are branded by quasi-monopoly institutions that hold knowledge about art, and collectors use these works to fill demand and display wealth. These factors rely heavily on the imperfect information within the art market.


If there is to be a true equilibrium that reflects aggregate consumer beliefs and creates a more true representation of prices and art, measures must be taken to provide transparency. Through the use of blockchain technology, individual microeconomic behaviors can be combined and inherent information to the artwork can captured to create a more transparent market.  


Through the application of blockchain technology, a global, verifiable ledger would exist that records each transaction that would occur within the art market. Each artwork would be tagged with a blockchain algorithm that would provide it a unique identification. This blockchain could encompass provenance, artwork and artist information, and specific dimensions of the work that all represent information inherent to the artwork. This technology would protect art from forgery issues and trace the provenance of art; often times, provenance is a quality of the imperfect information in the art market that drives prices, and through blockchain technology could be dismantled. Additionally, the public ledger would serve to reduce risk and create a greater sense of liquidity within the market by reducing the risk for new entering collectors.


Arguably, the most important aspect of blockchain technology implementation is it would decrease inflated prices by establishing a fluid market that relies on aggregate opinions of consumers. This would serve to align price and value for artists as the information gap within the art market closes due to blockchain technology. Blockchain technology would allow a more instantaneous and true market that would operate similar to a stock market – a market that responds to shocks in macroeconomic conditions and aggregate consumer behavior. Aggregate consumer behavior could be more easily tracked as demand within the art market would become a function of the economy as a whole and respond to interest rates, inflation, and GDP growth. Through this, a market could be established that reflects aggregate beliefs and creates a true equilibrium that is not skewed by information asymmetry.
Blockchain technology represents a step in the right direction to dismantle the information asymmetry that drives prices in the current art market. Through the use of blockchain technology, information, typically controlled by those with the greatest access, would become more accessible and prices would reflect, and respond to, consumer behavior and macroeconomic events; a ‘new market’ would be established and operate to represent a true equilibrium of prices and value.

What Drives Prices in the Art Market? Will Blockchain Technology Provide Greater Price Transparency, and Move the Market to a True Equilibrium?