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How to Win Twice at an Auction. On the Incidence of Commissions in Auction Markets

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  • Victor Ginsburgh

    (How to Win Twice at an Auction. On the Incidence of Commissions in Auction Markets)

  • Patrick Legros

    (ECARES, Université Libre de Bruxelles and CEPR)

  • Nicolas Sahuguet

    (ECARES, Université Libre de Bruxelles)

Abstract

We analyze the welfare consequences of an increase in the commissions charged by the organizer of an auction. Commissions are similar to taxes imposed on buyers and sellers and the economic problem that results looks similar to the question of tax incidence in consumer economics. We argue, however, that auction markets deserve a separate treatment. Indeed we show that an increase in commissions makes sellers worse off, but some (or all) buyers may gain. The results are therefore strikingly different from the standard result that all consumers lose after a tax or a commission increase. We apply our results to comment on the class action against Christie’s and Sotheby’s and argue that the method used to distribute compensations was misguided.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.146.

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Date of creation: Dec 2004
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Handle: RePEc:fem:femwpa:2004.146

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Keywords: Auction; Intermediation; Commissions; Welfare;

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  1. 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.
  2. 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.
  3. Richard Engelbrecht-Wiggans, 1987. "On Optimal Reservation Prices in Auctions," Management Science, INFORMS, vol. 33(6), pages 763-770, June.
  4. 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.
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Cited by:
  1. Ashenfelter, Orley C & Graddy, Kathryn, 2004. "Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby's and Christie's," CEPR Discussion Papers 4662, C.E.P.R. Discussion Papers.

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