Patrick Legros
Professor of Economics
On the Incidence of Commissions in Auction Markets
International Journal of Industrial Organization, Volume 28, Issue 6, November 2010, 639-644http://www.sciencedirect.com/science/article/pii/S0167718710000329
Publication year: 2010
We analyze the welfare consequences of an increase in the commissions charged by inter- mediaries 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.