Economic Theory

, Volume 8, Issue 2, pp 291–305 | Cite as

The all-pay auction with complete information

  • Michael R. Baye
  • Dan Kovenock
  • Casper G. de Vries
Research Articles

Summary

In a (first price) all-pay auction, bidders simultaneously submit bids for an item. All players forfeit their bids, and the high bidder receives the item. This auction is widely used in economics to model rent seeking, R&D races, political contests, and job promotion tournaments. We fully characterize equilibrium for this class of games, and show that the set of equilibria is much larger than has been recognized in the literature. When there are more than two players, for instance, we show that even when the auction is symmetric there exists a continuum of asymmetric equilibria. Moreover, for economically important configurations of valuations, there is no revenue equivalence across the equilibria; asymmetric equilibria imply higher expected revenues than the symmetric equilibrium.

JEL classification numbers

D44 D72 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Baye, M. R., de Vries, C. G.: Mixed strategy trade equilibria. Canadian Journal of Economics25, 281–293 (1992)Google Scholar
  2. Baye, M. R., Kovenock, D., de Vries, C. G.: The all-pay auction with complete information. CentER Discussion Paper 9051, 1990Google Scholar
  3. Baye, M. R., Kovenock, D., de Vries, C. G.: It takes two to tango: equilibria in a model of sales. Games and Economic Behavior4, 493–510 (1992)Google Scholar
  4. Baye, M. R., Kovenock, D., de Vries, C. G.: Rigging the lobbying process: an application of the all-pay auction. American Economic Review83, 289–294 (1993)Google Scholar
  5. Bikhchandani, S., Riley, J. G.: Equilibria in open common value auctions. Journal of Economic Theory 101–130 (1991)Google Scholar
  6. Broecker, T.: Credit-worthiness tests and interbank competition. Econometrica58, 429–452 (1990)Google Scholar
  7. Brooks, M. A., Heydra, B. J.: Rent-seeking and the privatization of the commons. European Journal of Political Economy6, 41–59 (1990)Google Scholar
  8. Bull, C., Schotter, A., Weigelt, K.: Tournaments and price rates: an experimental study. Journal of Political Economy95, 1–33 (1987)Google Scholar
  9. Dasgupta, P.: The theory of technological competition. In: J. E. Stiglitz and G. F. Mathewson (eds.) New developments in the analysis of market structure, pp. 519–547. Cambridge: MIT Press 1986Google Scholar
  10. Deneckere, R., Kovenock, D., Lee, R. E.: A model of price leadership based on consumer loyalty. Journal of Industrial Economics40, 147–156 (1992)Google Scholar
  11. Dennert, T.: Price competition between market makers. Review of Economic Studies60, 735–752 (1993)Google Scholar
  12. Dixit, A.: Strategic behavior in contests. American Economic Review,77, 891–898 (1987)Google Scholar
  13. Dougan, W. R.: The cost of rent seeking: is GNP negative? Journal of Political Economy99, 660–664 (1991)Google Scholar
  14. Ellingsen, T.: Strategic buyers and the social cost of monopoly. American Economic Review81, 660–664 (1991)Google Scholar
  15. Fundenberg, D., Tirole, J.: Understanding rent dissipation: on the use of game theory in industrial organization. American Economic Review77, 176–183 (1987)Google Scholar
  16. Hendricks, K., Weiss, A., Wilson, C.: The war of attrition in continuous time with complete information. International Economic Review29, 663–680 (1988)Google Scholar
  17. Hillman, A. L.: The political economy of protectionism. Harwood: New York 1988Google Scholar
  18. Hillman, A. L., Riley, J. G.: Politically contestable rents and transfers. Economics and Politics1, 17–39 (1989)Google Scholar
  19. Hillman, A. L., Samet, D.: Dissipation of contestable rents by small numbers of contenders. Public Choice54, 63–82 (1987)Google Scholar
  20. Lazear, E. P., Rosen, S.: Rank-order tournaments as optimum labor contracts. Journal of Political Economy89, 341–364 (1981)Google Scholar
  21. Magee, S. P., Brock, W.A., Young, L.: Black hole tariffs and endogenous policy theory, political economy in general equilibrium. Cambridge: Cambridge University Press 1989Google Scholar
  22. Milgrom, P.: Rational expectations, information acquisition, and competitive bidding. Econometrica49, 921–944 (1981)Google Scholar
  23. Moulin, H.: Game theory of the social sciences, 2nd ed. New York: New York University Press 1986aGoogle Scholar
  24. Moulin H.: Eighty-nine exercises with solutions from game theory for the social sciences, 2nd edn. New York: New York University Press 1986bGoogle Scholar
  25. Nalebuff, B. J., Stiglitz, J. E.: Prizes and incentives: towards a general theory of compensation and competition. Bell Journal of Economics13, 21–43 (1982)Google Scholar
  26. Narasimhan, C.: Competitive promotional strategies. Journal of Business61, 427–449 (1988)Google Scholar
  27. Raju, J. S., Scrinvasan, V., Lal, R.: The effects of brand loyalty on competitive price promotional strategies. Management Science36, 276–304 (1990)Google Scholar
  28. Rogerson, W.: The social costs of monopoly and regulation: a game theoretical analysis. Bell Journal of Economics13, 391–401 (1982)Google Scholar
  29. Rosen, S.: Prizes and incentives in elimination tournaments. American Economic Review76, 701–715 (1986)Google Scholar
  30. Snyder, J. M.: Election goals and the allocation of campaign resources. Econometrica57, 637–660 (1989)Google Scholar
  31. Tullock, G.: Efficient rent seeking. In: J. Buchanan et al. (eds.) Toward a theory of the rent seeking society. College Station: Texas A&M University Press 1980Google Scholar
  32. Varian, H.: A model of sales. American Economic Review70, 651–659 (1980)Google Scholar
  33. Weber, R. J.: Auctions and competitive bidding. In: H. P. Young (ed.) Fair allocation, pp. 143–170. American Mathematical Society 1985Google Scholar
  34. Wenders, J. T.: On perfect rent dissipation. American Economic Review77, 456–459 (1987)Google Scholar

Copyright information

© Springer-Verlag 1996

Authors and Affiliations

  • Michael R. Baye
    • 1
  • Dan Kovenock
    • 2
  • Casper G. de Vries
    • 3
  1. 1.Department of EconomicsThe Pennsylvania State University, State CollegeUSA
  2. 2.Department of EconomicsPurdue UniversityWest LafayetteUSA
  3. 3.Tinbergen InstituteDR RotterdamThe Netherlands

Personalised recommendations