I admit that I am truly fascinated at how the art market works and has continued to thrive, but I also believe that some aspects (and artworks) are ridiculous. The market can be influenced and fixed by one or a select few-- now primarily collectors and curators. Such is the influence of collector Steve Cohen who in 2005 purchased Damien Hirst's piece The Physical Impossibility of Death in the Mind of Someone Living for $12 million dollars. Here is a video which briefly details the process of making the piece and then later exhibiting it at the Met. For the sake of art.
To find out more on the economic aspects you can check out the new book titled The $12 Million Stuffed Shark: The Curious Economics of Contemporary Art (out in the US in September) which I found out about from the Gallery Hopper blog. This blog leads to an article in The Sun titled Bubbles, Booms, and Busts: The Art Market in 2008. According to The Sun article the book is "single best guide to both the anthropology and the economics of contemporary art markets."