All-pay auction

All-pay auction

In economics and game theory an all-pay auction, is an auction in which all bidders must pay regardless of whether they win the prize, which is awarded to the highest bidder as in a conventional auction. The all-pay auction is often used to model lobbying (bids are political contributions), or other competitions such as contests between animals.

The most straight-forward form of an all-pay auction is a Tullock auction, sometimes called a tullock lottery, in which everyone submits a bid but both the losers and the winners pay their submitted bids. This is instrumental in describing certain ideas in public choice economics. The dollar auction is a two player Tullock auction, or a multiplayer game in which only the two highest bidders pay their bids.

Other forms of all-pay auctions exist, such as the war of attrition, in which the highest bidder wins, but all (or both, more typically) bidders pay only the lower bid. The war of attrition is used by biologists to model conventional contests, or agonistic interactions resolved without recourse to physical aggression.

External links

* [http://www.econtalk.org/archives/2006/06/giving_away_mon.html Econ Talk podcast where economic professors discuss grants as a all-pay or Tullock auction.]


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