Shrinking Buyers Premium ?
 

Wouldn't it potentially make economic sense to have the buyers premium shrink as an item rises in price? For example, the 22% buyers premium is lowered to 15% on items over $100k and to 10% on items that go over $250k and further reduced as items go up the ladder? It seems a shrinking buyers premiums would have the effect of keeping more bidders in the game longer and lead to more bids. At least theoretically I guess.

The calculus from the point of view of the AH would be the reducing buyers premium (it's vig, as we say in on the steeet) would have to be offset by the higher sale price x reduced commission to make it worthwhile.

Maybe wouldn't work. Wonder if it has ever been tried in any large sports auctions?

I got a C in Eco 101 so maybe I'm missing something real obvious.

It makes all the sense in the world, I'd push my bids higher in that case. Problem is, the AH probably gave part of my premium to get the consignment on cards that reach that threshold.

I think the buyers can figure it out what they are paying and lower buyers premiums would lead to the same prices, just less for the auction house. Now in many cases that buyers premium is split with the seller on major cards, so not sure what a change here would do at all.

I could not care less what the buyer's premium is. Whatever it is, I just net it out of the total price I am willing to pay. In other words, if the most I want to pay for a card is say 1K, I don't care at all if you call 800 the bid and 200 the premium, or 900 the bid and 100 the premium. Why should I? I don't understand the continued misconceptions around it.

Buyers Premium
 

Thank you Peter…..you bid accordingly to the buyers premium. Case closed!

plus i would think the people bidding 100k are VERY aware of the premium and other costs versus the guy biddign 23 dollars on a topps heritage auto

People who worry about buyers premium are worried about nonsense. Why so much envy towards businesses? Ie the auction house? Focus on you. Man so much complaining. If 20% BP bothers you that much don’t bid, end of story.

Alas, Johnny, we are addicted to cards and can't stop bidding.

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First honest assessment I’ve seen in months !! LoL

On one side…. New money $100,000+ bidders aren’t thinking about buyers premiums.

On the other side of it….. Why do you believe all buyers are paying the same premiums? Old money negotiates these things before bidding.

The reality is AH are businesses and they do not want to give up there profits so they will not drop prices unless they are forced to by lack of demand to drive more sales/profit

We as buyers just buy at the price we are willing to pay (including the BP)

And the same as seller for what we are willing to sell at to net our price.

I could care less

If everyone uses perfect logic in buying items, knows exactly what they will spend and factors all the costs etc into every purchase decision, why do sellers still take full page ads in the newspaper every day yelling about car deals and discounts in real estate transactions?

If I have 100,000 to bid on a particular card, I will end up with a higher bid if the buyers premium is lower. It may not affect me, but it's better for the seller to have a higher sale price, no?

If I understand, you plan to PAY (no more than) $100,000, regardless of what the BP is. The question is why are you focused on how that $100,000 will be split between the consigner and the AH? That split has been negotiated and agreed to between them and has no obvious effect on you. It doesn't matter to the consigner how the $100,000 is apportioned between bid and BP; it only matters to the consigner that the $100,000 is apportioned between consigner and AH in accordance with their advance understanding.

I don't think a shrinking buyer's premium would affect buyers, but might it affect consignments? The lower the percentage that goes to the house, the more I make as a seller, so if I sell a $100k card I make 90k instead of 80k. i'd like that.

Sure Sotheby's is employing some logic here. Or they are another entity that doesn't understand how commissions work.

With the way business has been booming for AHs over last 10 years, I am actually surprised BP hasn't gone up more.

my mom buys art at christies and mayor houses people that are buying that art dont give a shit ,,shes has money i dont ,, lol

My thoughts exactly. Decide what you are willing to pay and figure out your bid taking the buyer’s fee and whatever other fees into consideration. Why complicate matters with a sliding scale?

If the rules apply to everyone bidding and those rules are clear, then that person who is willing to spend the most money will win regardless of the buyer's premium and regardless if the bp declines as the bid price goes up. Not sure why separating the bp from the bid is even a thing.

With one of the English auction houses I deal with the BP is over 30%

Suppose the premium was 50 percent. Suppose it was 75 percent. I would love to hear a coherent explanation of why that would matter to a bidder. I get why it would matter to a consignor if they don't have a separate deal.

You mean aside from the fact that the bidder gets to pay it, why should they care?

But I think we can safely set that aside, since I suspect that your point is that if you're the bidder, the precise breakout between bid and premium is irrelevant.

Naturally, the presumption is that all bidders:

1) Know about the size of the premium
2) Are sufficiently mathematically sophisticated to factor it into their price, and
3) Act rationally when bidding on items, and therefore don't allow things like extra charges to cloud their vision and approach to bidding.

I'm not sold that these points are always true 100% of the time. #3 is particularly suspect in my view. But we've argued this for long enough in the past to know that we are unlikely to completely agree on these points.

So, yeah.

I must be giving collectors way too much credit then. I cannot see how anyone bidding forgets or disregards the BP unless it is their first time bidding. That some do not care or have so much money that they treat it as if it is a shipping charge does not change the outcome. The person willing to write the largest check is going to win...no matter what the BP is.

Nothing about my original question had anything to with how this would affect or not affect my potential buying activities. I just asked why AH's don't do it to for their own economic reasons. I then got 15 responses saying who the hell cares and why would it matter to me as a buyer. And then a 5 minutes internet search reveals that Sotherbys does exactly what I suggested. And more why would I care responses.

But, hey guys, I get it. You personally don't care about the buyer's commission. We've all sort of heard that. Many times. Sort of a bit of a broken record at this point. Believe it or not, there was a different question on the table. For some reason Sotherbys believes it is in their interest to have a declining commission rate. Of course Christies does the same thing. Curious why they have a business model different than in our little world.

It seems most folks are forgetting auction houses care about how they can make any bidder pay more. This means getting the underbidder, not the winner, to bid as much as possible. How often are you right at your budget point? I'm sure we can all remember times where the current bid is a steal but the next bid is way over your max. Reducing the buyers premium reduces the total cost between bids. If bid + buyers premium is x and your willing to pay x + $100, and the next increment is going to be x + $200, reducing the buyers premium may get you to the point where it is within your budget to place that bid. If you win it, good for you. However, if you get outbid, the next bidder still has to top your bid and the auction house makes more money. If you can increase the number of bid spots between increments you should have more competition and reduce the number of lots that sell well below their market value.

Mathematically sophisticated? Yeah multiplying a number by 1.2 takes a lot of sophistication. Come on.

So why don't auction houses agree to get paid less by reducing the juice on higher-priced items?

Seems like a self-evident answer.

Obviously it will only happen if one member of the competition moves to that business model. And even then, only if the competition starts eating everyone else's lunch after moving to that business model, thereby forcing the other AHs to match that fee structure.

Never underestimate the inability of Americans to do simple things, like multiplication.

lol.

FWIW, there have been studies showing that people are not very good at adding up fees. That's why retailers are adding fees to all sorts of transactions now. There is even a bill in Congess to curb the practice, because we are all so gullible.

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I agree with you, and it is me as a seller the fees make a difference to, much more than me as a buyer.

I think probably many auction sites negotiate lower fees for higher priced items. I know all the ones I have worked with do.

The reduced fees are usually not passed along to the buyer though, rather they are rebated to the seller. In other words, if an AH adds 18% to the hammer, they could be sharing part of that with the seller.

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In a world in which all men were rational, the premiums are irrelevant.

However, we do not live in a world in which people behave with much semblance of rationality. Having the premium structure is more work for the auction house, not less. It requires disclosures everywhere, complicates billing, adds additional steps and line items in numerous points of interaction and in catalogs, toolkits and in almost everything else they use and produce. Yet every one of them has it. Why? Because the trick works. If it didn't work, the needless complication would be removed and the fees baked direct into the bid price. Many people clearly bid without fully calculating the premium, and even if they do it's easier to dismiss as the 'cost of doing business', just like how many people are well aware of sales tax but don't factor that into the 'is item X worth Y dollars to me?' equation when making a purchasing decision. Relying on this kind of thinking, or the sheer stupidity of users depending on perspective, works. The number of people who end up paying more in this system clearly is greater than the number of people that just don't bid because they see the trick and it bothers them.

All we are talking about in a buyers premium is how, on the surface, an auction house and the seller decide to split the proceeds of a sale. Assume in almost all cases the buyer is going to pay full market price regardless of what the buyers premium is/how the auction house and the seller split the proceeds. It's also a safe assumption that most auction houses give a higher percentage of the proceeds on higher priced items -- the business models you mentioned for buyers premiums are not even close to unique. Some auction houses are explicit about giving back buyers premium percentage points to the seller and others understandably treat it on a case by case basis. That is no different than how business would be conducted in any other field. I've even heard of a case where an auction house paid out more than 100% of the proceeds on one truly iconic card. Again, it's understandable if that draws in more business.

The assumption of the initial post seems to be that an explicit lower BP is somehow going to result in a higher total price for the item (bid plus BP). That makes no sense to me. The posts explaining why BP makes no difference to bidders are quite on point because they contradict that assumption.

I'm not aware of any other AHs that do what the OP found Sotherbys and Christies do, but Clean Sweep Auctions does the opposite of what the OP suggested and increases their BP as it gets later at night. I assume the goal is to get the auction to finally end since bidding later at night becomes more expensive (for everyone whether or not they are aware of it or factor it into their bidding).

15. BIDS PLACED AFTER 1:30 AM EST ARE SUBJECT TO A 5% ADDITIONAL BUYERS PREMIUM, 10% AFTER 2:30 AM EST; MAXIMUM BIDS PLACED BEFORE THIS TIME ARE EXEMPT FROM THIS.

Don't worry Steve, I get your question, and can understand where you're coming from.

To me, the idea of a fixed buyer fee/commission kind of goes along with the overcharging that TPGs do when grading cards or authenticating autographs. The TPGs charge a sort of progressive fee based on the supposed underlying value of the card/autograph, which allows them to grossly overcharge for basically putting in and doing the exact some amount of work and effort to grade a '52 Topps Mantle, or authenticate a Mantle autograph, as they do for grading an '88 Topps common card or an autograph from a common player in the same '88 Topps set. Yet people gladly and willingly seem to just go ahead and pay it. In the case of an auction house it is kind of the same with a fixed commission/fee. Technically and theoretically, the auction house puts in pretty much the exact same amount of work and effort to sell a '52 Topps Mantle card as they would for selling an '88 Topps common card. But because the '52 Mantle card is intrinsically more valuable and ends up selling for more money, the auction house makes more money for basically doing the same amount of work they did to sell a much lesser valued card. I'm certainly not against a legitimate business making a profit, but the fixed commission/fee auction house model definitely pushes AHs to go after the higher valued items, and ignore lower priced items and such that they may not make as much money on otherwise.

The idea you brought up in your question, and is demonstrated by what actually occurs with an auction house like Sotheby's, really makes perfect sense from a business standpoint for an AH. When Sotheby's sells an item at auction, they likely have a pretty good idea, based on the number of items in their auction, of what their fixed and variable costs are to sell each item in that auction. So if they have someone consign a very valuable item that will clearly generate commissions/fees well in excess of their fixed/variable costs, wouldn't it maybe behoove them to scale those commission/fees back a little by using a declining commission/fee charge, which they do as shown by your earlier post. That way, other potential consignors with very valuable items to sell would likely choose Sotheby's over different AHs that don't offer such a reducing commission/fee charge. Using such a declining commission/fee schedule should ultimately put more money into the consignor's pocket, and as a result, more consignors choosing to use Sotheby's for such sales. And this really isn't that different of an approach than what many AHs more focused on sports cards and memorabilia already take and use when they offer to reduce, or even eliminate, a seller's commission/fee that they would otherwise charge to consignors. Or in the case of some extremely valuable cards and items, even share a portion of the buyer's commission/fee with an item's consignor. It is an incentive or technique they offer to get consignors to consign with them, and not their competitors.

As you mentioned, the use of such a declining buyer's commission/fee technique really wouldn't/shouldn't have any effect on an auction buyer. It has been discussed before that in some cases you can have some auction bidders get caught up in the heat of an auction moment, and who then may momentarily forget about the buyer's commission/fee they end up paying. But I believe, as many others have already said, that that is likely happening only a very, very small percentage of the time, if at all. And that is especially the case when you're talking about more valuable items. A bidder is much more likely to not think about a 20% buyer's commission/fee on a $100 item, than they would on a $1M item. Wouldn't you agree?

I think your question itself just accurately highlights another way for some AHs to offer discounts/savings to consignors, to attract more of them to their AH as opposed to competitors. And the fact that big time art AHs like Christies and Sotheby's do things their way, using a declining commission/fee schedule to benefit and attract consignors, while sports card/memorabilia AHs tend to use an upfront discounted seller's commission/fee to benefit and attract their consignors, just shows how competitors in different businesses/industries tend to end up copying/sharing the same techniques and operating ways of their direct competitors. Great question IMO.

This is not about caring about the buyer's premium. It is about being aware of it and factoring it into the cost you will pay. BP is factored into what I pay...just like sales tax is. It is a cost I have to pay if I want to win something by being willing to outbid the guy whose bid I need to top. I also do not begrudge houses who want to earn a living charging the buyer and the seller.

As for Christies and Southebys I suspect their declining rate is due to the fact that they routinely sell very expensive items. I have no bid with either but they are in collectible fields which eclipse sports cards values more regularly...not that sports cards do not reach those high 6 figure and 7 figure values.

Hi James! How you been? It’s been a while. I hope all is well and I hope to see you one day soon at Philly or chantilly. Oh, and I agree with your post 100%

well appears worth it even with BP
 

How many times you try to sell a card on private market and then send to AH and get 30% more......seems fine to pay AH 20% when making 10 percent more than you can get on own...

https://i.imgflip.com/4m8nqj.jpg

But seriously a couple good reasons were given. On those top items most auctions are already giving up some of that BP and of course no commission. So there's only so many ways you can make less money before you're not making any money.

Also as you surmised Steve, you'd have to predict how much to the bottom line giving the percentage back would make and at what price levels to drop it. You're still gambling vs taking a sure thing. The gamble could pay off if you drop a point or two off the BP and the item sells for enough more to make up the discount, but that seems like an awfully iffy proposition. Let's say you have a 20% BP and at $100,000 you drop it to 18% that means the minute you hit $100k you LOSE $2k that you had in your pocket on the chance that the item sells for over $112k. yet the buyer only gets a $2k discount so why would he bid $12k more?

It's similar to the logic about why I try and explain to consignors that they should be HAPPY to pay for the grading. If you leave it to the auction to pay for the grading they're making the decision based on the perceived value increase versus their small percentage of the sale. if you have a card that's $800 raw and $1500 graded and it's going to cost $75. Let's say the auction is taking in a total of 20% on the card. So if they're paying for the grading they have to spend $75 to make an extra $140, and that's if they get the expected grade. It's just not worth it. If you agree to pay for the grading you're shelling out $75 to make an extra $540. By having the auction company pay for the grading you are likely costing yourself money becuase they are doing it with THEIR best interests in mind now and not yours!

What difference does it make? Buyers are going to spend a certain amount for a card regardless of how that gets broken down into buyers premium and live bidding. The only thing that matters is how much they're willing to pay in total.

In other news
 

Read this article from the WSJ today, and it reminded me of this thread (and a few others on this topic), debating the buyer's premium and the effect that it has on buyers.

Of particular interest is the part where the findings show that people routinely overpay and/or buy more when pricing is broken into chunks instead of aggregated into a single simple price. So I guess we can thank ourselves for being morons when it comes to simple math and the psychological impact on our decisions.

The last paragraph might be my favorite piece:

Our instincts as consumers are unfortunately the opposite: We punish transparency, think we’re clever enough to figure out any complexity, get sucked in by low offers then upgrade our ambitions, and conclude it’s too much hassle to start over. When we shop that way, we have mostly ourselves to blame.

Here's the article in full:

Who’s to Blame for All Those Hidden Fees? We Are

Four tests show why ‘drip pricing’ is so effective at getting us to pay up

Add-on fees are driving consumers crazy. From restaurants and hotels to concerts and food delivery, we are increasingly shown a low price online, only to click through and find a range of fees that yield a much higher price at checkout.

Everyone says they hate these fees, but four experiments illustrate why “drip pricing,” as it’s called by researchers and regulators, is so effective at getting us to pay more. Note that this isn’t about emotional blackmail, as with tipping: Drip pricing isn’t negotiable. Nor does it explain why the cost of living might seem higher than the official data suggests: The consumer-price index reflects these fees and taxes.

The experiments explain why the fees proliferate. The conclusion: Consumers themselves are to blame. “Even when we know the fees are coming, we underestimate their magnitude,” said Vicki Morwitz, a marketing professor at Columbia University who studies consumer psychology.

Consumers punish transparency
The term drip pricing was popularized by a 2012 Federal Trade Commission conference. Its spread is associated with the proliferation of airline fees after the Sept. 11, 2001, terrorist attacks. Yet an example of the phenomenon that long predates 2001 is stores’ practice of listing goods without the sales tax, which gets added at checkout.

Why not include the sales tax with the sticker price? A 2009 paper from economist Raj Chetty, then at the University of California, Berkeley, and co-authors, showed consumers punish that sort of transparency.

A grocery store let the authors tag some products with the familiar pretax price and some with the total price including tax. For example, a hair brush’s price tag showed $5.79 before tax, and beneath that $6.22 with the tax. Store managers predicted the transparency would be a disaster, and permitted the experiment for only three weeks and three product groups.

The managers were right. Sales volume dropped about 8% for products with price tags that included the tax than a control group without the tax.

This isn’t because shoppers didn’t know the tax rate or which items were taxable. In fact, 75% of shoppers surveyed knew the sales tax within 0.5 percentage point, and most knew what goods were taxable. So the tax-inclusive price tag didn’t give them new information; it was just that transparent reminders turned some people off.

People prefer ‘costly complexity’
For several years, Abigail Sussman at the University of Chicago and colleagues have run a series of experiments asking participants to find the best deal for a range of purchases, such as wedding venues, prepaid cards, university tuition schedules, cellphone plans or home closing costs.

They can then choose between complex or simplified disclosures. For example, the complex disclosure for prepaid cards breaks down the final price into things such as “initial fees,” “card acquisition fees,” “card activation fees,” “service fees” and “administration fees.” The simplified disclosure combines all these fees as a single “initial fee.”

If you realized this complexity tricks you into paying more for equivalent products, you’re in the minority. Some 70% of people preferred the complex disclosure, said Sussman. They believe that it’s more transparent and that they can calculate the total cost by themselves.

They’re wrong. Even when participants are offered cash to identify the cheaper option, people botch the math (costly complexity!) and pick more expensive options.

Lower prices prompt shoppers to upgrade
In 2013, the website StubHub, which resells event tickets, attempted to do away with hidden fees, citing research about how hated they are. Its new “all-in pricing” prominently displayed the total ticket cost from the beginning of searches. The strategy failed to boost business or attract more customers.

In 2015, shortly before abandoning all-in prices, StubHub did an experiment—described several years later by economists who obtained the data—where half of shoppers saw all-in pricing, and half saw the lower base price with taxes and fees only added at the end. The latter strategy boosted revenue 20%.

Shoppers didn’t just buy more tickets. When they saw lower prices initially, they opted for better seats. By the end of the checkout process, they were committed.

“When people get to the end of the process, there’s a variety of psychological reasons they’re locked in,” said Morwitz. “They overestimate the cost of starting over, they underestimate the benefits.” Maybe they’re just excited about the purchase, or reluctant to admit they could have made a mistake, she said.

On Thursday, two of the biggest U.S. ticket sellers, Ticketmaster and SeatGeek announced a switch to more transparent pricing. Some companies in the ticketing industry have said they would support all-in prices if they were mandated for everyone. The StubHub example shows why it’s hard for one company to buck an industrywide practice.

People think fees, like taxes, don’t alter relative prices
Morwitz and co-authors Shelle Santana of Bentley University and Steven Dallas of Duke University recruited people to book airlines and hotels for vacations, sometimes with rewards for finding the lowest rate.

People went for the low base prices, of course. After all the additional fees were dripped on, they had the option, not to mention incentive, to start over and look for a cheaper alternative. Here’s the twist: Most opted not to, erroneously believing drip prices worked sort of like taxes, affecting the base price by a constant, fixed amount, the authors concluded in their 2020 paper for Marketing Science.

It isn’t true. Drip prices can vary substantially between sellers, said Morwitz, and the lowest base price won’t necessarily be the lowest final price.

“For consumers, it’s hard,” said Morwitz. “You have to look at the prices carefully, don’t make any decisions until you see the total and be willing to restart the search.”

Our instincts as consumers are unfortunately the opposite: We punish transparency, think we’re clever enough to figure out any complexity, get sucked in by low offers then upgrade our ambitions, and conclude it’s too much hassle to start over. When we shop that way, we have mostly ourselves to blame.

Interesting indeed.

Why does Las Vegas exist? Because human beings are generally flawed decision makers, particularly where emotional needs and hopes are thrown into the equation.

But I learned along time ago that basic economic theory 101 has no application on this board. Everyone is a perfect calculated decision maker ……

Hell yes!! It’s those other morons that are the problem. Mostly the modern goons.

I have a hard time basing my love of a hobby on Econ101, same when I cook at home, I can provide sustenance with the cheapest cut of meat and a glass of water, or, if I can afford it, I might buy a nice ribeye and a bottle of wine.

It's not econ, it's psychology. I wrote a column on this a while ago.

https://open.substack.com/pub/adamst...utm_medium=web

One thing most people forget when ranting about BP is the other side of the equation. A consignor with a $100K+ card to sell frequently negotiates for a chunk of the BP. The consignor may be getting 105%-115% of the hammer price if the item is good enough.

People on the internet collectively are worse than politicians when it comes to answering the actual question vs. the question they wanted to be asked.

This is exactly what AHs do, but it is not obvious to observers because it is done as a negative consignor's fee.

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