Psychology of the Buyer's Premium

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Posted By: CoreyRS.hanus

Sensational issue, Barry.

In theory buyers should take the BP into account in deciding how high to go. In practice my guess is that some don't. Presumably Christies has been advised by people with expertise in bidder/seller psycology who probably opined one of two things: (1) a higher BP will generate a higher gross for auction, or (2) even if the BP reduces the auction's gross, that will be more than offset by the better consignments the auction house will garner by being after to offer (some) sellers a negative SP.

A really interesting subquestion is whether the auction format (e.g., (i) live or (ii) internet with lots closing after a certain period of inactivity) has any bearing on the profitability of a higher BP. My sense is that the higher BP would work better in a live auction. Such a format encourages more impulsive decision making and less time to calculate the impact of the higher BP on the final price, especially when a bidder has decided to exceed his predetermined limit on how high to go.