Buyer's Premium Framework
Who pays the premium?
The buyer's premium is a fee added to the winning bid in an auction. While it may seem that the buyer pays this premium, in reality, the seller bears the cost. This framework explores how the buyer's premium affects auction outcomes and strategies.
- The buyer's premium is a fee added to the winning bid.
- The seller bears the cost of the buyer's premium.
- Bidders adjust their strategies to account for the buyer's premium.
- Understand the buyer's premiumRecognize that the buyer's premium is a fee added to the winning bid.Pro tipBidders should factor in the premium when determining their maximum bid.WarningIgnoring the premium can lead to overpayment.
- Adjust bidding strategyBidders should adjust their strategy to account for the buyer's premium.Pro tipBidders can use the premium to their advantage by bidding strategically.WarningFailing to adjust the strategy can result in suboptimal outcomes.
Auction house example
An auction house charges a 20% buyer's premium. A bidder wins an item for $1000, but must pay $1200 due to the premium.
OutcomeThe seller receives $1000, while the auction house receives $200.
Ignoring the buyer's premium
Failing to account for the premium can lead to overpayment or suboptimal bidding strategies.
The concept of buyer's premium has been observed in various auction settings, including art and collectible auctions.
Source · BOOK
The Art of Strategy: A Game Theorist's Guide to Success in Business and Life