APPLICATION OF COMPETITION RULES ON MANIPULATIONS OF THE ART MARKET: AUTHENTICATION.
| Author | Lenaerts, Oliver |
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INTRODUCTION
Contemporary and modern art is essentially bought on two markets: the primary market for newly created artworks by living artists and the secondary market for artworks that have already been sold in the primary market. Secondary market sales are primarily made through auction houses and art dealers where prices are typically much higher than in the primary market. Market actors can take on different capacities and compete with each other, so that the distribution of artworks in the market can best be described as a dual distribution system in which the producer-artist often also competes with the dealer who sells the artist's artworks, or where a collector himself decides, after building up a portfolio, to become a dealer.
In this market--and especially in the secondary market--secrecy, anonymity and lack of transparency prevail. This is due to the fact that trading in the art market manifests itself differently from on efficient capital markets. Art buyers and sellers do not trade in an asset with an intrinsic value such as gold or shares. The attitude in the art market, often unspoken but persistent, is that art is more likely to be bought out of an appreciation for its intrinsic aesthetic and artistic merit. This means, however, that the call for regulation of the art market has little support. This is unjustified. The lack of regulation creates room for practices that, while they may be legal, they can at least be called unethical. (1) The main concern is insider trading. There is a kind of information pitfall in the art market. Collectors who do not belong to the select group of 'insiders' lack the information necessary to make a well-considered purchase. Because of these information asymmetries, the art market is (extremely) susceptible to manipulation and exploitation of market power.
In the following, I examine whether certain manipulative practices on the art market can be penalised or prevented through the application of competition rules. In Part 2, I give an overview of manipulative practices in the art market. In Part 3, I examine the concrete application of competition law to manipulations in the context of the standardisation and certification process on the art market.
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PRICE SETTING ON THE SECONDARY MARKET: AUTHENTICITY
On the secondary market, only dealers and collectors know the value of the works of art they have bought or traded privately. They have the capital strength to buy works of art without the pressure to sell quickly and know the market value of an artist better than the majority of art lovers who are forced to buy at auction. In the absence of transparency regarding prices on the secondary market, auction prices are the benchmark for future sales of works of art. (2) This observation can lead to practices on the primary market where gallery owners refuse to sell to speculative art collectors in order to prevent arbitrage opportunities on the auction market. A gallery owner on the primary market will often make it appear that he is only praising the artistic talents of the artist he represents. This engagement implies that he consciously (in consultation with the artist) chooses to steadily price the artist into the market and thereby takes a selective approach to building up a client portfolio. This selectivity is inherent in its civil choice to act as the artist's agent, but can lead to a kind of client restriction (known in jargon as the 'blacklist' on the basis of which 'art flippers' who buy art in order to immediately resell it at a profit are barred). In the secondary market, various aspects and actors can manipulate the price and the market. An often-discussed practice is that of art collectors injecting false information into the bidding process at auction (usually by co-bidding on objects they put up for sale at auction) with the sole purpose of inducing existing bidders to bid more than they would under normal circumstances (so-called 'shill bidding'). If one takes market distortion as an indicator for a competition law analysis, I think that customer restrictions are defensible due to the peculiarities of the art market (3) and that shill bidding is at best unfair. (4) Both manipulation strategies require a more in-depth analysis that is beyond the scope of this contribution.
However, one important aspect in the secondary market influences the objective valuation of works of art in a special way: authentication. Art historians, art dealers, heirs and even auction houses often work together to market a 'catalogue raisonne' as a kind of standard. It is also possible, of course, that an art collector may wish to call upon the expertise of an art dealer in the context of a commercial transaction to have a work of art declared authentic. One then certifies, for commercial purposes, that the artwork complies with the standard.
2.1. A 'Catalogue Raisonne' as a Standard
A standard is a document that lists the requirements of products. These may be technical regulations, regulations on the choice of materials, etc. A standard is usually drawn up by companies that bring together experts to discuss these regulations. In the arts sector, such standards usually take the form of the editing of a catalogue of works. A catalogue raisonne is a voluminous study devoted exclusively to a single artist, listing that artist's entire artistic production. In addition, the author addresses the current state of preservation and location of each work, its provenance and the exhibitions in which it has been included. (5)
If the editors of a catalogue raisonne do not include a particular work of art in the catalogue, this very rarely entails liability of the editorial team under civil law jurisdictions. Such 'editorial liability' is rejected both in the Anglo-American and continental European view by referring to freedom of expression. (6) In Part 3, I discuss the conditions under which competition law can apply if an art collector's collection is deliberately excluded from a catalogue raisonne.
So far, I have discussed the analysis of spontaneous attributions. As soon as a standard or catalogue of works of art is established, one can certify whether works of art that circulate in the trade comply with the standard in the sense that they are authentic.
2.2. Certification of Authenticity
In the art trade, certificates are regarded as an objective barometer of value. (7) In principle, these certificates are issued by independent experts commissioned by a client, but also by authentication committees set up by art foundations. They are the result of an assignment of expertise.
A distinction must be made between issuing an incorrect certificate and refusing to issue a certificate at all. In both cases, the value of the work of art can be dented, but the remedies differ. Incorrect certificates give rise to liability claims. By refusing to deliver a certificate, the price of the artist's work can be manipulated. This then offers opportunities for exercising market power that can be abused under competition law. In particular, heirs of artists (who organise themselves in the form of public art foundations) often hold the key to issuing the necessary certificates and are able to demonstrate arbitrary behaviour in doing so. (8)
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INFRINGEMENTS UNDER EUROPEAN COMPETITION RULES
Whether European competition law is an appropriate tool to legally challenge the above practices in the international art market will depend on the extent to which the manifestations of the manipulation fit within the lines of the playing field that has been drawn over the years for the purposes of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), the provisions governing competition. For the purposes of this article, I distinguish between the typical process by which works of art are standardised (3.2) and the certification of works of art (3.3). I begin our study with an analysis of the applicability of European competition rules to standardisation and certification practices in the arts sector (3.1).
3.1 Applicability of European Competition Law to Standardisation and Certification Practices in the Arts Sector
Below I discuss the applicability of European competition rules from three perspectives: material, personnel and geographic.
In principle, competition rules apply to all sectors of economic life. This is not mentioned anywhere as such but can be deduced from the broad definition of the concept of 'economic activity' and the absence of any exclusion. (9) Competition rules are a law of general application. In other words, the rules apply to all sectors and to all economic actors in an economy engaged in the commercial production and supply of goods and services. The question is therefore whether the drawing up of catalogues raisonnes and the related certification practice should be regarded as an economic activity. To answer that question, guidance can be found in the State aid rules. From the passages relating to aid to the cultural sector, (10) it can be deduced that activities that are predominantly financed by commercial means should be regarded as economic and that activities in the field of heritage or cultural preservation that benefit certain undertakings and not the general public should also be regarded as economic.
The editing of a catalogue raisonne is a typical a-commercial activity. It often involves university-trained (art) scholars whose daily work as a university professor, museum curator or art historian in specialised study centres consists of researching the oeuvre of a particular artist. This activity often results in a scientific study of the artist's oeuvre. Although non-commercial in nature, such studies nevertheless indirectly affect the commercial art market. If a work is not included, this affects the asset value of works of art of individualised art collectors and therefore their marketability. Thus, there is a market for the services...
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