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All-Pay Auctions

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All-Pay Auctions Empty All-Pay Auctions

Post  btaylor Sun May 24, 2009 10:35 pm

Here is an article talking about another type of auction called an All-Pay auction, where every bidder pays their bid but only the highest bidder wins.

http://expertvoices.nsdl.org/cornell-info204-digest/2007/03/10/all-pay-auctions-evolutionary-game-theory-and-visualizing-networks/
btaylor
btaylor

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All-Pay Auctions Empty Second Price/All Pay fusion

Post  tjhannemann Sun May 24, 2009 11:53 pm

War of Attrition

Wikipedia referenced the War of attrition: a fusion of the second price and all pay auctions. It models when two or more parties compete over a resource. Attrition style warfare in the military sense is when the military pursues a strategy that will bring about many casualties. The casualties are the cost of war. In the War of Attrition auction, each party can choose to continue in the auction at a cost (like remaining in a war would generate more casualties). The highest bid wins (socially optimal) and all the losers pay the lower bid (the cost they generated by staying in the auction for however long they did).

Curiously, war is not referenced as inspiration for the name. Clearly, it is.

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All-Pay Auctions Empty Re: All-Pay Auctions

Post  Tyler Davidov Mon May 25, 2009 12:26 am

This site has blog posts pertaining to information on an all-pay auction.
http://freakonomics.blogs.nytimes.com/2008/12/16/an-all-pay-auction/

Interestingly enough, the all-pay auction can be a dangerous auction to partake in if you are not strategic and careful. In an all-pay auction as expressed in this blog, is when bidders must pay regardless of if they win the auction or not. This can be dangerous because once a bidding war raises the price, people will feel forced to stay in the auction in hopes of winning the prize and not wasting money. However, this can become hypocritical because auctions like these may end up with people paying a higher value for a prize than what it's actually worth. The seller will make out very good in an all-pay auction, while the buyers may end up paying more than the actual value of the prize. This auction is mainly a result of flawed psychology in humans, but nonetheless is a risky auction to participate in.

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Post  Philip Goins Mon May 25, 2009 12:40 am

This is a fascinating topic. The idea of a multiple bid all-pay one is really an interesting one, because there is a penalty for losing. One can see that by bidding, you actually change your own payoff matrix. In class, the payoff for not winning a bid is zero, but in this type of auction, the payoff is negative one's most recent bid. That system forces people to keep bidding on an object even if they are now losing value, because the loss of not winning is still greater. This, as can be seen above, is very related to war. In fact, the term for such a "win" is called a Pyrrhic Victory, winning something that actually was not worth the cost involved. This term goes back to King Pyrrhus and his war with the Romans. Although defeating the Romans in battle at Herculeum and Asculum, Pyrrhus's forces suffered much higher casualties. Since then, the term is used to describe any victory that is not worth the price paid to achieve it, such as the bid for the twenty dollar bill, or sending troops into battle, to make sure that the battle is won by attrition, treating the previous casualties as sunk cost.

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