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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.

Suggested Citation

  • GINSBURGH, Victor & LEGROS, Patrick & SAHUGUET, Nicolas, 2005. "How to win twice at an auction. On the incidence of commissions in auction markets," LIDAM Discussion Papers CORE 2005005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2005005
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    References listed on IDEAS

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    1. Richard Engelbrecht-Wiggans, 1987. "On Optimal Reservation Prices in Auctions," Management Science, INFORMS, vol. 33(6), pages 763-770, June.
    2. Glenn Ellison & Drew Fudenberg, 2003. "Knife-Edge or Plateau: When Do Market Models Tip?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1249-1278.
    3. 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.
    4. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    5. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    6. 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.
    7. 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 231-247, February.
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    Cited by:

    1. Grigory Franguridi, 2014. "Higher order conditional moment dynamics and forecasting value-at-risk (in Russian)," Quantile, Quantile, issue 12, pages 69-82, February.
    2. Orley Ashenfelter & Kathryn Graddy, 2005. "Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby's and Christie's," Journal of Competition Law and Economics, Oxford University Press, vol. 1(1), pages 3-20.
    3. repec:pri:cepsud:102ashenfelter is not listed on IDEAS
    4. Orley Ashenfelter & Kathryn Graddy, 2005. "Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby's and Christie's," Journal of Competition Law and Economics, Oxford University Press, vol. 1(1), pages 3-20.

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    More about this item

    Keywords

    auction; intermediation; commissions; welfare;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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