Working Paper: CEPR ID: DP4876
Authors: Victor Ginsburgh; Patrick Legros; Nicolas Sahuguet
Abstract: We analyse 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.
Keywords: auctions; commissions; intermediation; welfare
JEL Codes: D44; L12; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in commissions charged by intermediaries (G24) | sellers are worse off (D16) |
| increase in commissions charged by intermediaries (G24) | expected revenue decreases for sellers (D49) |
| increase in commissions charged by intermediaries (G24) | buyers may gain (D44) |
| increase in commissions charged by intermediaries (G24) | higher reserve prices set by sellers (D44) |
| higher reserve prices set by sellers (D44) | sellers are worse off (D16) |
| decrease in competition (L13) | winning bidders pay lower prices (D44) |
| number of bidders (D44) | welfare of potential buyers (I30) |
| elasticity of participation (J22) | welfare effects of commission changes (D69) |