Taste Formation and Utility Maximizing Production: A Case Study of Art Industry
In this paper, I develop a dynamic model to study the market of art goods. I include two features of the arts market. Firstly, Art goods are experience goods. Consumers do not know the quality of the good before consumption. Thus consumers’ tastes for the good grow as the good is consumed in greater quantities. Secondly, most artists are utility-maximizing producers. Artists produce art works that not only please the market and but also themselves. An artist utility depends on both the profit generated by the art and the quality of the art. I assume that the perceived quality of the consumer and the artist need not be the same. My model aims to capture the interaction of the demand and supply of art. My model found that when the artist’s artistic preference is large relative to his or her commercial preference, positive real solutions are only possible when the consumer's maximum perceived value of the art or the per unit merchandise revenue of the art is significantly big. In addition, an increase of government subsidy to arts organization does not necessarily always increase the quality of artwork perceived by both the artist and consumer. An increase in government subsidy gives extra income to the artists and increases the artist's perceived quality of the art produced, but lowers the consumer’s perceived quality and the quantity consumed. On the other hand, an increase in the rate of taste formation increases both the artists and the consumer’s perceived quality of art, but decreases the quantity consumed.