How to win twice at an auction On the incidence of commissions in auction markets

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 o¤, but buyers may strictly gain. The results are therefore strikingly di¤erent 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 …xing 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: auction, intermediation, commissions, welfare JEL Numbers: L120, L400, D440. Acknowledgements: Legros and Sahuguet bene…ted from the …nancial support of the European Commission (RTN “Competition Policy in International Markets”HPRN-CT-2002-00224) and of the Communauté Française de Belgique (ARC 00/05-252). We thank Kathryn Graddy, Marco Pagnozzi and Philippe Weil for their comments. We also bene…tted from comments by participants at the Third Conference on Auction and Market Design, Rome, September 2004, and by various seminar participants.