How to Win Twice at an Auction: On the Incidence of Commissions in Auction Markets
Victor A. Ginsburgh
Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)
Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR)
HEC Montreal - Institute of Applied Economics
CEPR Discussion Paper No. 4876
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's was misguided.
Number of Pages in PDF File: 30
Keywords: Auctions, intermediation, commissions, welfare
JEL Classification: D44, L12, L40working papers series
Date posted: May 24, 2005
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