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How to win twice at an auction. On the incidence of commissions in auction markets

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  • GINSBURGH, Victor
  • LEGROS, Patrick
  • SAHUGUET, Nicolas

Abstract

We analyze the welfare consequences of an increase in the commissions charged by intermediaries in auction markets. We argue that while commissions are similar to taxes imposed on buyers and sellers the question of incidence deserves a new treatment in auction markets. We show that an increase in commissions makes sellers worse off, but buyers may strictly gain. The results are therefore strikingly different from the standard result that all consumers weakly lose after a tax or a commission increase. Our results are useful for evaluating compensation in price fixing conspiracies; in particular they suggest that the method used to distribute compensations in the class action against auction houses Christie's and Sotheby' was misguided.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2005005.

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Date of creation: 00 Feb 2005
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Handle: RePEc:cor:louvco:2005005

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Keywords: auction; intermediation; commissions; welfare;

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References

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  1. Burguet, Roberto & Sakovics, Jozsef, 1999. "Imperfect Competition in Auction Designs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 231-47, February.
  2. Orley Ashenfelter & Kathryn Graddy, 2003. "Auctions and the Price of Art," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 763-787, September.
  3. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
  4. Richard Engelbrecht-Wiggans, 1987. "On Optimal Reservation Prices in Auctions," Management Science, INFORMS, vol. 33(6), pages 763-770, June.
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Cited by:
  1. Kathryn Graddy & Orley Ashenfelter, 2004. "Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby`s and Christie`s," Economics Series Working Papers 203, University of Oxford, Department of Economics.

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