Management of Art Galleries – Business Models - Universität St.Gallen

50 / 225 Conceptual Basiscustomers now play a prominent role in auctions. This practice reduced information asymmetryand helped inexperienced retail customers to participate in auctions (Mei & Moses, 2002, p.2411). Furthermore, auction houses started to engage in a number of related activities, includingfinancing and dealing (Dossi, 2007). The finance segment of an auction house provides selectedcollectors and dealers with financing. Generally, securities for loans are works of art that theauction house either has in its possession or permits the borrower to possess (Sotheby's, 2009).The dealer segment acts like the secondary market activity of art galleries. It sells works directlyto buyers (such as private collectors and museums) or serves as intermediary in private purchases(Sotheby’s, 2009). As auction houses increasingly foster this segment, some have started toovertake existing brokers.Competition on the auction market is severe, since any owner of an artwork has four options:sale or consignment to, or private sale by, (1) an art dealer, (2) an auction house, (3) a museumor (4) a sale through an internet-based platform (Sotheby's, 2009). Consequently, there have beena lot of very recent mergers in the auction market. Bonhams has acquired Phillips UK andButterfields, the West Coast American auction house. In 2002, Bernard Arnault, CEO of LouisVuitton, Moet Hennessy (LVMH), sold his stake in Phillips, de Pury and Luxembourg to Simonde Pury and Daniella Luxembourg. Daniella Luxembourg then left the partnership andestablished a gallery in Switzerland (Thompson, 2008). In October 2008, Russian luxury retailcompany Mercury Group acquired the majority share in the former number three auction houseworldwide, Phillips (Varoli, 2008). Today, Phillips is a small specialist auctioneer with offices inNew York, London, Geneva, Paris, Munich and Berlin. Christie’s, one of the two leading auctionhouses in the world, also went through troubled waters lately (Thompson, 2008). In 1998,Francois Pinault, head of Pinault-Printemps-Redoute, bought Christie’s and took it into privateownership. According to the press articles (Walsh, 2008), Pinault has since considered sellingthe auction house again.The structure of the auction market is highly concentrated on the two leading auction houses. Forthe Fine Art sector the two largest auction houses, Christie’s and Sotheby’s, generated auctionsales turnover in 2008 of $2.9 billion and $3.3 billion respectively. Together the two auctionhouses generated 73% of global Fine Art auction revenue from only 16% of global transactions(Artprice.com, 2009). Together the two houses accounted in 2008 for more than 87% of the ultratop end of the market (929 of the 1,064 sales above the million-dollar mark were auctioned atone or the other) (Artprice.com, 2009). Both auction houses are represented worldwide,Christie’s with 57 offices in 32 countries and salerooms in major cities around the world, andSotheby’s with more than 100 offices around the world with approximately 1,555 employees(Sotheby’s, 2010; Christie’s, 2010). The top 67 auction sales in 2008 were generated atChristie’s or Sotheby’s, and the gap to the next auction house is wide. Only at position 68 do wesee Phillips de Pury. Furthermore, the three next largest auction houses (beta auction housesPhillips de Pury, Bonhams and China Guardian) accounted only for a combined 10% share in theFine Art auction market (Mc Andrew, 2010).