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On the incidence of commissions in auction markets

Author

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  • Victor Ginsburgh
  • Patrick Legros
  • Nicolas Sahuguet

Abstract

We analyze the welfare consequences of an increase in the commissions charged by intermediaries in auction markets. Commissions are similar to taxes imposed on buyers and sellers, and standard economics suggests that both sellers and buyers are made worse off by the tax. However, we show that when the buyers’ participation constraint binds and when sellers set optimal reservation prices, the level of commissions correlates participation and reservation prices in such a way that participating buyers strictly gain from higher commissions.

Suggested Citation

  • Victor Ginsburgh & Patrick Legros & Nicolas Sahuguet, 2010. "On the incidence of commissions in auction markets," Working Papers ECARES 2010-009, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/230861
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    References listed on IDEAS

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    1. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872 Elsevier.
    2. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    3. Glenn Ellison & Drew Fudenberg, 2003. "Knife-Edge or Plateau: When Do Market Models Tip?," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1249-1278.
    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 231-247, February.
    5. Paulo K. Monteiro & Flavio M. Menezes, 2000. "original papers : Auctions with endogenous participation," Review of Economic Design, Springer;Society for Economic Design, vol. 5(1), pages 71-89.
    6. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
    7. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721.
    8. Richard Engelbrecht-Wiggans, 1987. "On Optimal Reservation Prices in Auctions," Management Science, INFORMS, vol. 33(6), pages 763-770, June.
    9. 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.
    10. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-599, June.
    11. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
    12. Wright Julian, 2004. "One-sided Logic in Two-sided Markets," Review of Network Economics, De Gruyter, vol. 3(1), pages 1-21, March.
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    Cited by:

    1. Tri Vi Dang & Florian Morath, 2013. "The Taxation of Bilateral Trade with Endogenous Information," Working Papers tax-mpg-rps-2013-07, Max Planck Institute for Tax Law and Public Finance.

    More about this item

    Keywords

    auction; intermediation; commissions; welfare;

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