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Neutrality of buyer and seller commissions to auction house profit

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  • Toshihiro Tsuchihashi
  • Yusuke Zennyo

Abstract

This paper presents an examination of optimal revenue management of a monopoly auction house through which a seller sells goods via a second‐price auction. The house charges commissions to both the buyer and seller. Results demonstrate that a continuum of combinations of optimal buyer and seller commission rates exists, all of which yield the same expected profit of the house. Additionally, we discuss several possible factors that lead to the prevailing custom of zero buyer commission, such as commission aversion of buyers, the house's incentive to maximize the hammer price, and seller and buyer preferences for apparently lowered commission rates.

Suggested Citation

  • Toshihiro Tsuchihashi & Yusuke Zennyo, 2021. "Neutrality of buyer and seller commissions to auction house profit," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 209-218, January.
    • Handle: RePEc:wly:mgtdec:v:42:y:2021:i:1:p:209-218
    DOI: 10.1002/mde.3225
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    References listed on IDEAS

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    1. Denton Marks, 2009. "Who pays brokers' commissions? Evidence from fine wine auctions," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 761-775, October.
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    3. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
    4. 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.
    5. Nicola Lacetera & Bradley J. Larsen & Devin G. Pope & Justin R. Sydnor, 2016. "Bid Takers or Market Makers? The Effect of Auctioneers on Auction Outcome," American Economic Journal: Microeconomics, American Economic Association, vol. 8(4), pages 195-229, November.
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    7. Eric A. Greenleaf & Jun. Ma & Wanhua. Qiu & Ambar G. Rao & Atanu R. Sinha, 2002. "Note on "Guarantees in Auctions: The Auction House as Negotiator and Managerial Decision Maker"," Management Science, INFORMS, vol. 48(12), pages 1640-1644, December.
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