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

35 Pages Posted: 26 Nov 2004

See all articles by Victor A. Ginsburgh

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)

Patrick Legros

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Northeastern University, department of economics; Centre for Economic Policy Research (CEPR)

Nicolas Sahuguet

HEC Montreal - Institute of Applied Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 2004

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.

Keywords: Auction, Intermediation, Commissions, Welfare

JEL Classification: D44, D80

Suggested Citation

Ginsburgh, Victor A. and Legros, Patrick and Sahuguet, Nicolas, How to Win Twice at an Auction. On the Incidence of Commissions in Auction Markets (December 2004). FEEM Working Paper No. 146.04. Available at SSRN: https://ssrn.com/abstract=624464 or http://dx.doi.org/10.2139/ssrn.624464

Victor A. Ginsburgh (Contact Author)

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
1348 Louvain-la-Neuve, 1348
Belgium
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Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

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Patrick Legros

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
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+32 2 650 4475 (Fax)

Northeastern University, department of economics ( email )

301 Lake Hall
Boston, MA 02115
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Nicolas Sahuguet

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

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