Judicial Versus Private Auctions: Better Without Protection?
Abstract: At the beginnings of the 1980’s Chile liberalized the entry of auctioneers and partially the auction fees. The reform, though, kept two restrictions for judicial auctions only: i) new maximum fees, and ii) the obligation for judges to assign auctions in a non-discriminatory manner among the different registered auctioneers. Competition policy concerns were severely reduced since freedom of entry, and maximum legal fees were considered enough disciplinary mechanism to avoid monopolistic inefficiencies. Using a sample of 680 and 1300 judicial and private auctions respectively, we find that Courts assign the judicial auctions in a discretional manner, and that the assigned auctioneers charge fees which are substantially higher than those permitted by law. We test the hypothesis that the judicial auctions’ design has additional costs and, consistent with the predictions of a simple model, that it is more likely for Courts to appoint the less efficient auctioneers. We conclude also that, as the model predicts, the net price received by creditors and debtors in judicial auctions are about 18% to 33% below those possible to obtain in private auctions, where freedom of entry and freedom to set prices exists.
