Regulating the Art Market – artmarketblog.com
The art market is generally considered to be an unregulated market which basically means that it is not controlled or governed according to rule or principle or law. Another term for an unregulated market is a free market the definition of which is, according to the Farlex financial dictionary, “A market economy based on supply and demand with little or no government control” (ie. taxes, subsidies or regulation).
The reasons that people are calling for the art market to be regulated are:
1. To prevent or control insider trading (insider trading is where someone who has access to non-public information through their position in a business or organisation and uses that information as the basis for conducting a market trade with the intention of benefiting from the use of the information)
2. To prevent monopolisation
3. To prevent price gouging (where sellers ask for a price that is much higher than what would be deemed fair under the circumstances)
4. To police the existence of questionable practices such as the inclusion of “right of first refusal” clauses in sales documents
Although the art market is technically unregulated there is one piece of legislation that acts as a sort of regulation and that piece of legislation is the resale royalty (droit de suite). For those of you no familiar with the resale royalty, a very broad definition is “the right of artists to receive royalties from the resale of their works”. In countries where the resale royalty has been implemented art dealers (basically anyone who sells art that attracts a resale royalty) is required to provide a report of eligible sales to the governing body of the resale royalty. According to the UK legislation artists are able to demand that any “art market professional’ (sellers, buyers, intermediaries, sale rooms, art galleries and art dealers) provide information needed to secure payment of royalties. By requiring that an art market professional provide such a report the resale royalty promotes transparency, accuracy, ethical practice and is basically a form of regulation.
Although some level of regulation would seem to be a requirement in a global market estimated to be worth 30-40 billion dollars a year, there are some compelling reasons that too much regulation could be bad for the art market. History has shown that there is very little correlation between the art market and other investment markets such as the stock market and real estate market. One of the main reasons that people are currently moving into art investment is because the art market has shown to be relatively immune to the factors that cause the other investment markets to be highly volatile or to perform badly. It would seem that one of the reasons for the lack of correlation is the lack of regulation of the art market which would suggest that if the art market were to be regulated to the same extent as other investment markets that the art market would then become susceptible to the same factors that affect other investment markets.
So, do you think that the art market should be more regulated and if so, how?
**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.