02 Aug 2010  Research & Ideas

Modern Indian Art: The Birth of a Market

Before 1995, there was little market for twentieth-century Indian fine art. That's when artists, auction houses, critics, and others defined a new product category—modern Indian fine art—resulting in worldwide demand and soaring prices. Professor Mukti Khaire explains the dynamics behind new market categories.


Market categories—SUVs, smartphones, hip replacement surgeons—help facilitate commerce and other "market exchanges" by providing a basis for comparison and valuation. If I am hunting for a new SUV, for example, I can quickly research that category of similar products for dealers, prices, product reviews, and safety ratings, all moving me forward toward a purchase decision.

In short, market categories help establish expectations about products and hence facilitate exchange between buyers and sellers. But how do they emerge? Who defines them? How are products within new market categories assigned value?

One of the first studies of value construction as a detailed process in new market categories has been written by Mukti Khaire, an assistant professor at Harvard Business School, and R. Daniel Wadhwani, an assistant professor at University of the Pacific.

To understand this process better, they looked at the emergence of modern Indian art as a category in the international fine art market between 1995 and 2007. Before 1995, fine art was produced in India but there was little demand largely because Indian art was considered provincial or decorative. To create a market, this art was redefined as a new product category—modern Indian art—by a variety of participants including artists, academics, commercial auction houses, and critics.

And as Western museums and collectors began to take notice, prices for pieces in the category rose even more, from a few thousand dollars to as high as, in some cases, millions of dollars.

Khaire and Wadhwani describe their work in "Changing Landscapes: The Construction of Meaning and Value in a New Market Category—Modern Indian Art," which is scheduled to be published in a forthcoming Academy of Management Journal.

Sean Silverthorne: What are market categories, and why are they important?

Mukti Khaire: Categories are cognitive constructs meant to organize large amounts of information into manageable units. Goods classified as belonging to the same category are more similar to each other than to goods in other categories. Such comparability and equivalence of attributes makes it easier for consumers and other market participants to judge the relative value of the goods within the category based on shared assumptions of what is normative for that category.

Thus, categories are crucial to making market goods commensurable, which in turn is critical to enabling market exchange. For example, until the early 1990s, when 20th-century Indian art was generally characterized as "decorative art" in international art circles, it was categorized with other items from that category. This kept values low, commensurate with those of other decorative art objects. After 1995, following a movement among critics, art historians, academics, and players such as galleries and auction houses, the same art was classified as modernist and therefore "fine art." It was perceived as aesthetically and economically more valuable, in keeping with the values of fine art more generally.

Q: Why did you use the Indian art market as the basis for your study on how categories evolve?

A: Our interest began when we wrote a case on Saffronart.com, an Indian start-up that organized online auctions of modern Indian art. We originally decided to write the case because it was an unusual business model, but as we worked on the case we realized that there was a very interesting, broader story of how markets get created, which involved more than one player.

The case was particularly relevant to the study of market creation because of three reasons.

First, the art itself (the "product" so to speak) was produced since the late 1940s in India although it had not been systematically traded in a sustained manner in international art markets until the early 1990s, which indicated that a market for the art had had to be actively created. Supply alone did not generate demand.

Second, this was a case in which actors other than the producers (that is, the artists) interpreted the product to explain and construct its value to consumers, allowing us to examine the entire ecosystem of players that are important in creating expectations about a new market category.

Third, the processes of reinterpretation and value construction are particularly explicit and overt in the art world, where critics, reviewers, and other commercial actors alike engage in public discourse that compares artworks and discusses the attributes underlying their relative value.

So, the Indian art market is an interesting case to understand how entrepreneurs may take advantage of changing contexts and build on the actions of other actors in the ecosystem to participate in new markets.

Q: How did the process of redefining the category begin?

A: It began in the 1990s when art historians and academics reconceptualized 20th-century Indian art as modernist, claiming that previous characterizations of the art as "provincial" or "derivative [of Western modern art]" arose out of a limited definition of modernism in the Western context. Academic and critical discourse around that time began to stress that 20th-century Indian art was an example of Indian modernism, a unique aesthetic tradition that expressed the modern Indian identity by blending traditional Indian visual themes and international artistic influences. This discourse hence suggested that this art had so far been aesthetically misjudged, therefore implying that it had also been economically undervalued.

Saffronart and the other auction houses (Christie's, Sotheby's, Phillips, and Bonhams) were able to translate the changing academic discourse into simpler constructs that enabled a wider and more diverse group of actors and lay consumers to understand modern Indian art, its finer points, and what made it valuable. This allowed for stable market exchange of the art.

The first auction of solely modern Indian art was held in 1995 by Sotheby's, but the establishment of Saffronart in 2000 changed the discourse in the market space by incorporating ideas from the academic discourse into their auction texts. Because Saffronart focused on auctions of only modern Indian art (unlike the larger, established players such as Christie's and Sotheby's), it was critical for the firm to establish modern Indian art as a market category. It did so by providing detailed explanations about the art—citing experts, critics, and academics—thus generating a broader understanding of the art and its value among consumers as well as other players, such as the journalists, museums, and galleries who were watching the category emerge.

Although Saffronart may have originated the practice of providing discursive descriptions of the art, it was soon joined in this practice by the other established players as well. In fact, without the broader diffusion of this practice, which led to greater understanding among a broader set of actors and consumers, the process may not have been as successful, since the development of a market category depends on an intersubjective understanding of the attributes of the goods and their relative value.

Q: What were the key steps in how the Indian modern art market went from essentially a nonexistent category to one where individual paintings were being sold for millions of dollars?

A: The market for modern Indian art was created in three broad steps:

  1. Redefinition of the category: As mentioned earlier, art historians and academics began the process of redefining and reinterpreting 20th-century Indian art in modernist terms, emphasizing its originality and describing its aesthetic value. This in turn implied that the art had a higher economic value than what had been ascribed to it before then.
  2. Creation of valuation metrics: This part of the process took place among the commercial players in the ecosystem. In order to generate trade in the art, auction houses translated the academic discourse into simple, straightforward constructs that not only explained the new category to stakeholders, but also enabled comparison and consequently valuation of the art works. We found evidence of four main constructs being used in the auction texts: explications of the originality of the modern Indian aesthetic, emphases on artist careers and specific influences on them, the use of artistic movements and schools of art within the Indian context to define relative value, and finally, descriptions of the internationalism of Indian artists in order to establish their legitimacy in the art world. These constructs provided metrics that helped stakeholders understand the art, compare different art works by the same artist or art works by different artists, and judge and evaluate them on a common basis, and thus generated a valuation system, which is crucial to enabling exchange in a market setting.
  3. Broad acceptance and understanding of the category: These constructs used in auction house texts helped define the value of modern Indian art, and as public documents, these texts helped disseminate the same valuation system among broader audiences. Museums and galleries in the West began to take notice of the new genre, holding retrospectives and special exhibitions, which established modern Indian art as a legitimate category of fine art. Newspapers and magazines (both general interest magazines as well as dedicated art publications) in India and abroad began to write not only about the auctions, but also about the art itself, usually using language and constructs similar to those used in the auction texts.

As this understanding spread, the value of modern Indian artworks increased significantly. The average price of a work at auction went from approximately $6,000 in the first six years of auctions to approximately $44,000 in the next six years of auctions. A couple of paintings broke the million dollar barrier, and several others sold for hundreds of thousands of dollars. These rapidly rising prices provoked greater coverage in the press, which in turn expanded the circle of stakeholders that converged on the understanding of modern Indian art generated by the auction house texts. As a result the market for modern Indian art converged on shared expectations of value among buyers and sellers.

Consequently, we found that pre-auction estimates of the value of a given work made by auction houses became narrower, more precise over time, suggesting growing certainty about the valuation that could be expected. We also found that the difference between the auction house's estimate of an artwork's value and final hammer price paid by the buyer decreased over time, indicating convergence and intersubjective agreement over the value of works among buyers and sellers, which in turn indicated that the market for the category was established.

Q: You show that new category formation is "intricately linked with the past." Can you explain this a little further?

A: We found that the constructs that were used to define value in modern Indian art were based on existing interpretations of what constitutes modernism—originality and an emphasis on the artist as an individual, for instance—which in turn were meaningful only in the context of the history of the art world. This indicated to us that meaning and value in a market category are neither freely assigned by actors and entrepreneurs nor purely emergent, but rather embedded in historical and cultural contexts.

This would imply that entrepreneurs wishing to create new market categories are circumscribed by historical context and therefore they need to situate their valuation constructs accordingly.

Q: What did your research add to the existing literature?

A: The three main contributions of this research are to explicate the cognitive bases of market creation, to demonstrate the historically- and contextually-embedded nature of new market creation, and to emphasize the role of the broader ecosystem in the process of market creation. We show that in order to enable market exchange in a new category of goods, firms have to first establish the cognitive and definitional foundations of value metrics that not only generate an understanding of the new category but also enable comparison, evaluation, and valuation of the goods.

However, we also show that firms' agency is circumscribed not only by the context they are embedded in, but also by the actions of other firms as well as noncommercial entities in the ecosystem.

Q: Does your work provide practical advice for entrepreneurs and innovators who are developing products that do not fit into easily recognizable categories?

A: It is important for entrepreneurs and innovators to co-opt changes in the broader context as opportunities for creating new markets. For example, auction houses were able to capitalize on the fact that 20th-century Indian art was being reinterpreted and redefined by academics.

Entrepreneurs need to recognize that markets are not merely created at the intersection of supply and demand. Rather, markets have cognitive underpinnings in addition to economic ones, and successful entrepreneurs will manage the cognitive aspects to generate shared meanings that aid in the creation of markets by establishing the foundation for valuing goods.

While the ability to generate valuation metrics for new market categories is an important and essential entrepreneurial skill, entrepreneurs should also recognize that single actors cannot generate the broad, intersubjective agreement necessary for the establishment of a new market. Rather, entrepreneurs should be cognizant of the important role played by other commercial and noncommercial actors in the ecosystem. For instance, in this case, other auction houses and the media were the commercial actors that enhanced the dissemination of a widespread understanding of modern Indian art, while noncommercial actors such as academics laid the foundations of the new market.

Q: What are you working on now?

A: I am currently working on a few related projects that examine the relationships among entrepreneurship, the construction of value in new markets by entrepreneurs and other commercial and noncommercial actors in the ecosystem, and the processes of market creation.

Related to the question of how value is constructed is a study on the emergence of the Indian fashion industry and how this new and unfamiliar industry was established among Indian consumers as a legitimate market category. Through extensive field work in India, I found that, similar to the art market, other players in the fashion ecosystem—media (especially magazines), fashion education institutes, and specialized high fashion retailers—played important roles in defining the new industry for consumers, establishing its boundaries, and also determining the worth of the high fashion apparel. The main difference in this case is that the fashion designers, i.e., the producers, also took steps to aid the process by framing their activities in ways that established their worth.

In a separate project, Dan Wadhwani and I are working on developing a generalizable framework for understanding how value is constructed in markets by going beyond the purportedly "subjective" market categories such as art and fashion and examining the processes in commodity markets such as tobacco, financial services, and so on. We propose a theory of market creation processes that involve multiple players working together out of self-interest to generate a set of value constructs that define which attributes get valued and how.

About the author

Sean Silverthorne is Editor-in-Chief of HBS Working Knowledge