Neutrality of Buyer and Seller Commissions to Auction House Profit

Abstract

This paper presents an examination of optimal revenue management of a monopoly auction house through which a seller sells goods via a second-price auction. The house charges commissions to both the buyer and seller. Results demonstrate that a continuum of combinations of optimal buyer and seller commission rates exists, all of which yield the same expected profit of the auction house. Additionally, we discuss several possible factors that lead to the prevailing custom of zero buyer commission, such as commission aversion of buyers, the auction house’s incentive to maximize the hammer price, and seller and buyer preferences for apparently lowered commission rates.