The Metropolitan Museum of Art is planning renovations to improve its modern and contemporary art wing in order to be able to better compete with other museums in New York City. The article from The New York Times about the renovations can be found here. The Metropolitan Museum is one of the best art museums in the world, but in New York City there are many competitors for modern art galleries. The Museum of Modern Art and the Whitney Museum are two examples of competitors in this market. In other areas, the Met has almost no competition, with a near monopoly on pre- modern art displays. Competition between museums is interesting because it is not perfect competition, since only one museum can own a specific piece of art and works by famous artists are a very scarce resource, making it harder to compete in the market. The Met recently received a donation of 79 cubist paintings, so in order to take advantage of this the museum is looking to create a new space that will allow these pieces to be well displayed. These pieces will help draw consumers (art audiences) to the Met from other modern museums throughout the city.
Another important thing about this renovation is that it will be a sunk cost, but after it is completed variable costs will be fairly low. Once the space has been completed it will hopefully encourage more art collectors to donate pieces, which would have no cost for the museum. The space itself though, especially if it is completely from the ground up, could cost hundreds of millions of dollars and close down parts of the museum for long periods of time. This would be an implicit cost since closed down wings will deter some visitors, taking away the admission donations they would have paid. Once the wing is open though, there would be small variable costs once the art is hanging and on display. Overall it seems like this renovation is a good idea since it will attract more audiences to the Met, which in the long run will outweigh the cost of the renovation. And art is a wonderful part of our world that deserves to be shared and viewed and admired.
The economics behind art museums is very interesting. In my experience, they rely heavily on donations from patrons, rather than charging admission. I think that this is fantastic because it makes art very accessible, however, this model only works if there are wealthy patrons who are willing to donate money to the museum. It is interesting how museums “recycle” patron donations by using donations to build a new wing which will hopefully attract new patrons.
I agree with you that in the long run, the profit that the Met will earn in the future will outweigh the sunk costs that the museum is responsible for renovations. Also, as you have mentioned, the Met has almost no-competition. What this means is that people who would like to take time to tour museums are most likely going to end up going to the Met because the chances are that the artworks that they are looking for will probably be at the Met.
However, I do have a concern after reading this article: http://www.artsjournal.com/culturegrrl/2009/06/recession_obsession_metropolit.html
This article mentions that during a recession, the Met cut some of its staff members. It is obvious that during recessions, people will be unwilling to visit museums. That will lead to a huge decrease in the Met’s total revenue while they will face the same fixed cost, such as the electricity, and staff wages. If the Met expand too much, the consequences will be severe during recessions as they will face huge fixed costs compared to the little profit that they will make.