In Korean art auctions, bought-in (which means they failed to sell) artworks yield 14.4% lower returns, but price declines send an even stronger negative signal. This suggests that falling resale prices, more than unsold history, are a clearer red flag for collectors and investors.
Introduction
In the art world, there’s a common belief. If a painting goes unsold at auction, it’s bound to fetch a lower price in the future. But is this really the case? Using global auction data, Beggs & Graddy (2008) put this theory to the test. They found that when a painting fails to sell, its eventual selling price tends to be significantly lower compared to similar works that never faced the auction failure between sales.
But what about emerging markets? The dynamics of unsold artworks in markets like Korea remain largely unexplored. By applying Beggs & Graddy’s (2008) framework to the Korean art market, this study sheds light on how auction failures are associated with future prices in an emerging market context. In doing so, we reveal key differences between global and emerging art auction dynamics.
How Does an Art Auction Work?
Art auctions start with a catalog—potential buyers receive a detailed guide featuring the artworks up for sale, along with their estimated price ranges. These estimates give bidders a sense of what each piece might be worth before the bidding even begins.
Once the auction starts, bidding kicks off at a low price and climbs as participants place higher and higher offers. The moment no one is willing to bid more, the last and highest bid becomes the hammer price—the final selling price of the artwork.
But not every artwork finds a new owner. Sellers (also called consignors) set a reserve price, the minimum amount they’re willing to accept. If biddding doesn’t reach this confidential threshold—set below the low estimate—the piece goes unsold, which is known as a bought-in.
The Role of Bought-In in Artwork Returns
Our study dives into this question using transaction data from Seoul Auction and K Auction, covering 1998 to 2024. We focus on 2,077 repeat sales transactions, tracking artworks that appeared in multiple auctions to analyze how being “bought-in” is associated with returns.
we mapped out each artwork’s sales history, tracking both hammer prices and bought-ins. We categorized these histories into two groups (see table 1):
- Sold → Bought-in → Sold: Artworks that failed to sell before eventually finding a buyer.
- Sold → Sold: Artworks that successfully sold both times without a failed auction attempt.
By examining three-period sales data, we gain a clearer picture of how auction failures is related to long-term price trends.
Table 1 Sales cases of the same artwork used in our study
| First auction
(Period 1) |
Second auction (Period 2) | Third auction (Period 3) | |
| (1) | Sold | Bought-in | Sold |
| (2) | Bought-in | Sold | Sold |
| Sold | Sold | Bought-in | |
| Sold | – | Sold | |
| Sold | Sold | Sold |
The results are clear, bought-ins are related with low returns. When an artwork fails to meet its reserve price and later sells at auction, its total returns drop by approximately 14.4% compared to pieces that sold smoothly. Considering that the average holding period for bought-in artworks is 7 years, this translates to an annual return reduction of about 1.94% per year.
Bought-ins VS Price Decline
Then, what if a piece does sell, just at a lower price than before? Does that also spell trouble for its future value? To find out, we compared works with a history of bought-in (“sold, bought-in, sold”) to works successfully sold in three consecutive auctions (“sold, sold, sold”).
Interestingly, We reveal that a price decline is associated with a greater reduction in returns compared to a bought-in. While failing to sell at auction sends a negative signal, an actual drop in price may be an even bigger warning to the market. In short, a falling price may be the loudest red flag of all.
Implication
How should we interpret these intriguing findings? One possible explanation lies in the Efficient Market Hypothesis (EMH)—the idea that all available information should be fully reflected in asset prices in an efficient market, leaving no opportunity for statistically significant abnormal returns. But in the Korean art market, this doesn’t seem to hold.
Why? The bought-in mechanism may be playing a role. Since reserve prices prevent artworks from being sold below a certain level, they can temporarily obfuscate an artwork’s true market value. Such delays in revealing trade prices could lead the spread of crucial price information. This informational inefficiency could slow down necessary price adjustments, causing prices to decline less steeply in later auctions than they otherwise would.
Interestingly, our findings diverge from Beggs & Graddy (2008), who studied U.S. auctions. They found that price declines between sales had no significant impact on future returns, meaning a temporary drop in value wasn’t necessarily a bad sign. So why the difference? The answer isn’t entirely clear, but factors such as market size, the types of artworks traded, and differences in how efficiently information spreads may all contribute to the gap (see Erdős & Ormos, 2010; Hong et al., 2022).
The Strategic Side of Bought-Ins in Art Auctions
Our findings offer a fresh perspective on the role of bought-ins in Korean art auctions. At first glance, failing to sell a piece might seem like a bad outcome, but could it actually be a strategic move?
First, the bought-in mechanism may contribute to market inefficiencies by temporarily hiding an artwork’s low value, slowing down how price information spreads. However, it also plays more intriguing role. While a bought-in prevents a sale at a lower price, it can protect against excessive price drops—potentially benefiting both sellers and auction houses.
For sellers, unless there’s an urgent need to liquidate, keeping a higher reserve price and risking a bought-in might be the smarter play. By avoiding a forced sale at a bargain price, they preserve the artwork’s value, potentially leading to better long-term returns.
For auction houses, while they may miss out on immediate commission revenue from unsold lots, the potential for higher prices in future sales could mean bigger earnings down the line.
References
Beggs, A., & Graddy, K. (2008). Failure to meet the reserve price: The impact on returns to art. Journal of Cultural Economics, 32, 301-320.
Erdos, P., & Ormos, M. (2010). Random walk theory and the weak-form efficiency of the US art auction prices. Journal of Banking Finance, 34(5), 1062-1076.
Hong, K., Ryu, J., & Kim, J. (2022). The weak-form efficiency of the Korean auction prices. Asia-Pacific Journal of Business & Commerce, 14(3), 165-190.
About the article
Hwang, S., Ryu, J. & Hong, K. The paradox of being unsold: hidden signaling value of bought-in in Korean art auction. J Cult Econ (2025). https://doi.org/10.1007/s10824-025-09535-3
About the authors
Seohyeon Hwang is a master’s degree student in the Department of Arts and Cultural Management at Hongik University, Seoul.
Jiye Ryu has a Ph.D. in the Department of Arts and Cultural Management at Hongik University and is currently a visiting scholar at Deakin University in Melbourne.
Kihoon Hong is an Associate Professor in the College of Business at Hongik University, Seoul.
About the image
Jack Wilkie-Jans at the Declan Crouch Fund Charity Art Auction, Tipoff2013, CC0, via Wikimedia Commons
