What's better? Artists competing for the mass public, artists trying to please individual rich patrons, or artists trying to placate some government commission?

I think a mix is fine. But there are disadvantages if you weigh too heavily on the latter two. In Europe, there's already quite a lot of government subsidies for art. Try finding a British or French movie that doesn't open by announcing its connection with some government subsidy program. While I quite like quite a lot of what Europe produces (especially cinema), in the long run I suspect it won't be sustainable. Whereas the free(r) market approach of e.g. the US and Japan will end up ahead.