CNG…Roma increases Buyers Premium

[Egry]

30 minutes ago, Severus Alexander said:

I don’t think I’ve missed your point. Let me try to do a better job of explaining what I mean to see if there’s any remaining disagreement.

I’m saying you need to ask what determined that 150 hammer in your example.  Another bidder, of course. How did they come up with their max bid?  Well, if they did it like you, me, and @Egry do, and I daresay like most of us on the board, they figured it out by including all their expenses. So, ignoring shipping, and supposing the bid increment is 10, their max all-in at 20% was 140 + 28 = 168, or basically 170.  That’s how they came up with their bid of 140.  You end up paying 150 x 1.2, as you say, i.e. 180.

Had the BP been only 10%, their all-in max would be the same, but they would have bid more to arrive at that max.  They would have bid either 150 or 160, giving them an all-in cost of 165 or 176, as close as they can get to their target all-in of 170 given the increment. (The increment always decreases flexibility meaning our numbers won’t be exactly on target.) And what do you end up paying in this case? Either 160 x 1.1 = 176, or  170 x 1.1 = 187, which averages out to 181.50, in effect the same as the 180 you were paying in the other scenario with the 20% BP. So unless you’re talking about that negligible $1.50, you pay the same either way. That’s what I meant, but didn’t explain very well.

That of course assumes your underbidder’s bidding behaviour is determined by an all-in target cost, which it should be. Not everyone does as they should, though, so as I acknowledged to Curtisimo, an increase in the BP can indeed have an effect on us, the “rational bidders,” when the bidders who ignore all-in costs bid higher than they should. 

Well explained.

another way to inadvertently increase the ‘BP’ is increase the increment. An increment of $10 now becomes $20 or $50.  Just enough to skim off another 1% without anyone knowing:)

[Severus Alexander]

16 minutes ago, Egry said:

another way to inadvertently increase the ‘BP’ is increase the increment. An increment of $10 now becomes $20 or $50.  Just enough to skim off another 1% without anyone knowing:)

Assuming people have a greater tendency to round up rather than down, that's probably right.  The effect will be pretty small, though (I think), because slightly less than half the time a bidder will end up bidding less than they would have with a smaller increment, simply because the next increment is now too high for them.

[SimonW]

  

1 hour ago, Severus Alexander said:

That of course assumes your underbidder’s bidding behaviour is determined by an all-in target cost, which it should be. Not everyone does as they should, though, so as I acknowledged to Curtisimo, an increase in the BP can indeed have an effect on us, the “rational bidders,” when the bidders who ignore all-in costs bid higher than they should.

I doubt that any bidder always and only bids rationally, let alone a majority. I, for example, often set myself a maximum bid, but in the heat of live bidding tend to bid more than what I wanted, especially for coins I have been looking for a long time. In spontaneous situations like these, it is almost impossible to factor in the buyer's premium and other fees.

[Severus Alexander]

3 minutes ago, SimonW said:

I doubt that any bidder always and only bids rationally, let alone a majority. I, for example, often set myself a maximum bid, but in the heat of live bidding tend to bid more than what I wanted, especially for coins I have been looking for a long time. In spontaneous situations like these, it is almost impossible to factor in the buyer's premium and other fees.

You're probably right, Simon.  That said, for the purposes of the discussion here, the meaning of "rational" is fairly limited.  Someone might have a tendency to go one or two increments further than their originally decided max in the heat of live bidding.  That might (or might not) count as "irrational" in some broader sense.  But for our purposes here, to be rational all they'd have to do is curb this tendency a bit when the BP is higher (and/or the exchange rate!), due to knowing that the increment amounts to more compared to a lower BP.  Not everyone will do this, of course, but it's not as though you need to actually do the calculations on the fly to take that increased BP into consideration.  I certainly do something like this... I'm definitely more reluctant to go another increment if the BP is 24% than if it's 15%, or if the auction is in GBP vs. CAD.  

On the other hand... erm, I almost never go above my pre-set max!  Am I a weirdo? 🙃

[SimonW]

29 minutes ago, Severus Alexander said:

On the other hand... erm, I almost never go above my pre-set max!  Am I a weirdo? 🙃

I'd say you're very self-controlled then 🙂 I am probably too impulsive.

From an objective point of view, charging a buyer's premium is not a particularly honest business practice, as its sole purpose is to deceive bidders. If all bidders were rational, consignors and auction houses would not make a higher profit with a buyer's premium, so the buyer's premium would be irrelevant and no one would charge it. But since (I would say most) people are not always very rational, the only purpose of the buyer's premium is to mislead buyers to think that the final price is lower than what they will ultimately have to pay.

The real problem is that this business practice is legal in the first place and that it leads to an imbalance if it is employed only by some and not by all. So the ever-increasing premium is simply the result of missing regulations.

Edited July 31, 2022 by SimonW

[Dwarf]

No one ever mentioned taxes!

Only referring to VAT

1 - may be added to the complete auction price plus premium (Künker did this in the 2nd Preussag auction in London, meaning 50% plus - didn't affect prices!)

2 - may be added just on the premium (different % as to country)

3 - dealer may use the margin scheme

4 - customs sometimes want its share.

Depending whether you are a dealer or a private buyer and where you are living and from whom you are buying the overall premium may vary from roughly 20% to 50%.
To my opinion adding premiums to prices in acsearch or CA won't help.

Regards
Klaus

Who is working with a very helpful excel-sheet taking regard of premium, VAT and exchange rates

 

Edited July 31, 2022 by Dwarf

[Egry]

29 minutes ago, Dwarf said:

No one ever mentioned taxes!

Only referring to VAT

1 - may be added to the complete auction price plus premium (Künker did this in the 2nd Preussag auction in London, meaning 50% plus - didn't affect prices!)

2 - may be added just on the premium (different % as to country)

3 - dealer may use the margin scheme

4 - customs sometimes want its share.

Depending whether you are a dealer or a private buyer and where you are living and from whom you are buying the overall premium may vary for roughly 20% to 50%.
To my opinion adding premiums to prices in acsearch or CA won't help.

Regards
Klaus

Who is working with a very helpful excel-sheet taking regard of premium, VAT and exchange rates

 

That’s how I roll mate. Assuming a 20% auction BP, exchange and import tax add another 15%. Typically a total of 35% 

Edited July 31, 2022 by Egry

[Hrefn]

This Friday I attended the Bay State Coin Show.  In years past, this event was held in Boston, though now it is in a venue close to the intersection of the 495 and the Massachusetts Turnpike I-90.   It is still a big show, though heavily skewed toward dealers in US coins.  The increase in BP by major auction houses was a topic of discussion with the few ancient coin dealers.  One of them professed his delight with the increases.  His rationale is that such increases make his business model more competitive, both for his customers and for those who sell to him.  His margins on many coins is less, he says, than the auction houses charge.  I may have reinforced his opinion, because I bought two coins from him.  I must say it was refreshing to pay the sticker price without BP, currency conversion, 3.5% credit card fee, shipping, customs fee, customs delay, handling fee, etc.,etc.   Plus the opportunity to pick up the coin and examine it in hand before purchase is not negligible. 

The downside is the allure of the coins in the next tray, and the next tray.  And the next tray.  

[Severus Alexander]

19 hours ago, SimonW said:

From an objective point of view, charging a buyer's premium is not a particularly honest business practice, as its sole purpose is to deceive bidders. If all bidders were rational, consignors and auction houses would not make a higher profit with a buyer's premium, so the buyer's premium would be irrelevant and no one would charge it. But since (I would say most) people are not always very rational, the only purpose of the buyer's premium is to mislead buyers to think that the final price is lower than what they will ultimately have to pay.

At first I thought this was pretty much right, @SimonW, but then an objection occurred to me, and I think the objection is sound.  Let me know what you think!  It arises only in the case where the auction is for consigned items.  

When the auctioneer is selling consigned items, there are two possible sources for their cut: the consignor and the buyer.  Way back when I believe the normal state of affairs was that the auctioneer's cut would all come from the consignor.  The buyer then decides what they want to pay, and their all-in cost is the same as the hammer.  No "deceptive practice" (as you put it) in this case.

Now there's obviously nothing wrong with the auctioneer getting their cut, right?  Right.  But why should this cut necessarily all come from the consignor's pocket?  No reason at all, it seems to me.  It would also be perfectly fair for the consignor and buyer to share the fee, or for it to be charged entirely to the buyer.  It depends on where the competition between auction houses is.  If the main competition is for buyers, then the auctioneer wants the consignor to pay more of the fees.  On the other hand, if the competition is for auction houses to attract consignors, then the auctioneer wants the buyer to pay more of the fees, right?  In one case the consignor pays the auctioneer extra for the privilege to sell, in the other the buyer pays the auctioneer extra for the privilege to buy.  Neither is inherently problematic, and in both cases, that "extra" would genuinely be something of additional value above the value of the item being auctioned.  

(Which actually undermines my earlier contention somewhat, that fees should be irrelevant to rationally behaving people in this situation.  That contention assumed there was only one thing being exchanged, the item being auctioned.  Perhaps that's quite wrong!  In addition there's this privilege thing, whether to sell or buy through the auctioneer's services.)

It seems to me this is just what has happened: auction houses, competing for consignors, have reduced consignor fees while increasing buyer's fees.  In itself, there's nothing wrong with that, it's a perfectly healthy thing to do when competing for consignor business.  So there's at least one perfectly benign reason to charge buyer's fees that your comment neglects to consider.

However your comment is also right, in that one effect of charging a buyer's fee is that irrational (or worse, unsuspecting) buyers can end up paying more than they intend... to the benefit of both the auction house and the consignor.  This does indeed smack of dishonesty.  That said, the auctioneer and consignor could very well reply that it's a mere unintended side effect of the real reason, as outlined above, why there's been a shift from charging fees to the buyer rather than the consignor.  And that could be a fair point, no?

Edit/addendum: That doesn't mean that the buyer's fee increases we've seen lately, and which are the primary topic of this thread, couldn't be dishonest or otherwise problematic. Maybe those increases are primarily driven by a tendency (conscious or not) to take advantage of the buyer's irrationality or ignorance rather than by any true need for the auctioneer to be better compensated.  Perhaps once the benign shift took place, it took on a less benign form... bwahahahah! 😈

Edited August 1, 2022 by Severus Alexander

[Egry]

11 hours ago, Hrefn said:

This Friday I attended the Bay State Coin Show.  In years past, this event was held in Boston, though now it is in a venue close to the intersection of the 495 and the Massachusetts Turnpike I-90.   It is still a big show, though heavily skewed toward dealers in US coins.  The increase in BP by major auction houses was a topic of discussion with the few ancient coin dealers.  One of them professed his delight with the increases.  His rationale is that such increases make his business model more competitive, both for his customers and for those who sell to him.  His margins on many coins is less, he says, than the auction houses charge.  I may have reinforced his opinion, because I bought two coins from him.  I must say it was refreshing to pay the sticker price without BP, currency conversion, 3.5% credit card fee, shipping, customs fee, customs delay, handling fee, etc.,etc.   Plus the opportunity to pick up the coin and examine it in hand before purchase is not negligible. 

The downside is the allure of the coins in the next tray, and the next tray.  And the next tray.  

Very good point. 

[SimonW]

1 hour ago, Severus Alexander said:

Now there's obviously nothing wrong with the auctioneer getting their cut, right?  Right.  But why should this cut necessarily all come from the consignor's pocket?

It's quite simple: if all bidders were completely rational, the buyers premium was irrelevant and the consignor would always pay the entire cut. It's because rational bidders will bid a lower amount with increasing premium and the consigners, thus, get the same amount out of an auction. Here's an example:

Buyer's premium 0%, consignor's fee 20%:
Hammer 110 -> buyer pays 110 (no premium), consignor gets 88 (110 - 20%).

Buyer's premium 10%, consignor's fee 12% (all buyers are 100% rational and factor in the BP):
Hammer 100 -> buyer pays 110 (including 10% BP), consignor gets 88 (100 - 12%).

Buyer's premium 25%, consignor's fee 0% (all buyers are 100% rational and factor in the BP):
Hammer 88 -> buyer pays 110 (including 25% BP), consignor gets 88.

As you can see, the buyer's premium increases more than the consignor's fee decreases. That's because one fee is on top and the other one is a cut. But it doesn't change the principle since the rational buyer wants to pay always the same amount after fees, no matter what the fees are, and the auction house will take the same fee as well.

So, the only chance on higher profits for both the consignors and auction houses in the above example is taking advantage of irrational bidders (who will not factor in fees and be surprised by them afterwards), which is deceptive IMHO.

Why should the consignor bear the entire cut? Because the consignor is the one using the auction house's service. The rational buyer doesn't care where they buy the coin, they will spend the same amount for a certain coin no matter if they buy it from a FPL, from an auction or from a collector friend. The seller of the coin, on the other hand, will want to sell their coin for the best price they can get with as little effort as possible. And that's most probably in an auction (professional picture, professional description and a great pool of potential buyers).

[Severus Alexander]

@SimonW, the math you describe in your example is exactly how I was thinking too, at first.  I guess the objection basically wonders: but isn't the auction house arguably providing a service to the buyer, and not just the seller?  Something the buyer would be willing to pay for?  Your reply is:

31 minutes ago, SimonW said:

The rational buyer doesn't care where they buy the coin, they will spend the same amount for a certain coin no matter if they buy it from a FPL, from an auction or from a collector friend. The seller of the coin, on the other hand, will want to sell their coin for the best price they can get with as little effort as possible. And that's most probably in an auction (professional picture, professional description and a great pool of potential buyers).

I think this is right. One might try to quibble: The buyer might pay for the convenience of aggregation, bringing all the coins they're interested in together, as in a large auction house.  Or for a good guarantee of authenticity.  But you could easily reply that these are really just part of what's in the consignor's interest as part of what gets them the best price.  That seems to apply to any possible objection based on what the buyer values.  Of course that means we have to be careful when we say "the buyer will spend the same amount for a certain coin, no matter where it comes from."  Not quite: the context has to be the same too, e.g. the same level of guarantee of authenticity.

So you've convinced me.  I'm back to thinking the BP shouldn't matter as long as the buyer is rational.  And I'm happy to go along with the principle that the BP should, ideally, be eliminated. 🙂 

Edited August 1, 2022 by Severus Alexander

[SimonW]

I have to revise my theory after reading the entire thread again, sorry @Severus Alexander🙂

My theory was only true if a buyer always has to pay their maximum. But that's not true with auctions. If a bidder is below their maximum, a buyer's premium does increase the profit for both the consignor and the auction house even with rational bidders, who will pay more with the BP, but less than what they were ready to pay. So the BP increases the seller's surplus by reducing the buyer's surplus economical speaking. The BP sole purpose is, thus, not to deceive bidders, but to increase the final price in case the winning bidder would have been ready to pay more. The fact that it deceives irrational bidders may just be a welcome side-effect.

But, it's still not a very honest business strategy as those auctions are supposed to be second price auctions or english auctions and the ever increasing BP makes them more to a first price auction, meaning that the winning bidder always pays their maximum.

Edited August 1, 2022 by SimonW

[Severus Alexander]

14 minutes ago, SimonW said:

I have to revise my theory after reading the entire thread again, sorry @Severus Alexander🙂

My theory was only true if a buyer always has to pay their maximum. But that's not true with auctions. If a bidder is below their maximum, a buyer's premium does increase the profit for both the consignor and the auction house even with rational bidders, who will pay more with the BP, but less than what they were ready to pay. So the BP increases the seller's surplus by reducing the buyer's surplus economical speaking. The BP sole purpose is, thus, not to deceive bidders, but to increase the final price in case the winning bidder would have been ready to pay more. The fact that it deceives irrational bidders may just be a welcome side-effect.

But, it's still not a very honest business strategy as those auctions are supposed to be second price auctions or english auctions and the ever increasing BP makes them more to a first price auction, meaning that the winning bidder always pays their maximum.

Good point! 👍

This discussion has been very enlightening.  And the subject is certainly more complex than I realized!

[John Conduitt]

I think the proof that we will pay more overall is in the reason the BP is going up. If it was true that everyone re-calculated their bids to allow for BP, then the auction house wouldn't bother putting it up.

Even if you do re-calculate, you will pay. The increments are not £1. They are £10, £50, £100, £200 or more. If the next increment is £200, you have to decide in a split second whether £245 rather than £240 is acceptable. It's fairly straightforward to decide whether another £200 is worth it, but £240 vs £245? I don't think so. It will be £5 more for the auction house. It doesn't sound much, but it's a 12.5% increase - more than inflation.

Inflation is a disingenuous reason for putting up premiums. By that logic, in 100 years BPs will be 1000%. Of course, it's nonsense. Putting them up for competitive reasons or to bring them in line with auction houses in other categories sounds more like it.

By the way, Noonans also add BP to the bidding screen, and show you how much you have spent. Strangely, I spend more with them than Roma or CNG. Auction houses may think not showing it means we will spend more and regret it later, but it's the unexpected totals that build up to a poor brand perception. Some auction houses get slated regularly for high shipping, even though it is published beforehand and we should 'account for it in our bidding'. Of course, you don't know how much you will spend, so you can't properly account for shipping.

Also, I'm in the UK. The talk of exchange rates helping is rather US-centric. Roma are more competitive because of exchange rates, so this should help keep BPs down. But it hasn't. CNG just became competitive again. And Roma's 'spend more than £2500 inc BP and shipping and you can't pay with a credit card' rule got more awkward to comply with.

Edited August 1, 2022 by John Conduitt