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A Comparison of Multiple-Unit All-Pay and Winner-Pay Auctions Under Incomplete Information

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  • Yasar Barut
  • Dan Kovenock
  • Charles Noussair

Abstract

This paper examines the properties of independent-private-value all-pay and winner-pay auctions when there are multiple units sold. We study bidding behavior, efficiency and revenue in a set of nine experimental sessions, each with six bidders. All-pay auctions were played in six of the sessions, three sessions with four units and three sessions with two units auctioned. A four-unit winner-pay auction was played in three of the sessions. Our data show that the all-pay auction and the winner-pay auction are empirically revenue equivalent and yield higher revenue than the risk neutral Bayesian equilibrium. Revenue is higher in the all-pay auction when K=2 than when K=4, despite the fact that Bayesian equilibrium revenues are identical for the two cases. Our evidence also suggests that the winner-pay auction is more likely than the all-pay auction to lead to a Pareto-efficient allocation. ZUSAMMENFASSUNG - (Ein Vergleich von All-Pay- und Winner-Pay-Auktionen mehrerer Einheiten bei unvollständiger Information) In diesem Aufsatz werden die Eigenschaften von independent-private-value all-pay- und winner-pay-Auktionen untersucht, bei denen jeweils mehrere Einheiten verkauft werden. Es wird das Gebots-Verhalten, die Effizienz und der Erlös in einem Set von neun Experimenten mit je sechs Teilnehmern betrachtet. In sechs der Experimente werden all-pay-Auktionen durchgeführt, wovon in drei Durchgängen je vier Einheiten und in den anderen drei je zwei Einheiten versteigert werden. In den drei restlichen Experimenten werden winner-pay-Auktionen durchgeführt, wobei je vier Einheiten versteigert werden. Das Experiment zeigt, daß all-pay- und winner-pay-Auktionen ähnliche Erlöse erzielen, die jedoch höher sind als der im Bayesianischem Gleichgewicht mit risikoneutralen Bietern spieltheoretisch vorausgesagte Gewinn. Bei all-pay-Auktionen ist der Erlös höher, wenn K=2 als im Fall K=4, während die theoretisch berechneten Gleichgewichtserlöse in beiden Fällen identisch sind. Diese Ergebnisse legen nahe, daß winner-pay-Auktionen eher zu einer Pareto-effizienten Allokation führen als all-pay-Auktionen. Classification_JEL:

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 99-09.

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Length: 56 pages
Date of creation: Jul 1999
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Publication status: Published in the International Economic Review , Vol. 43(3), August 2002, pp. 675-708.
Handle: RePEc:wzb:wzebiv:fsiv99-09

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  1. Krishna, Vijay & Morgan, John, 1997. "An Analysis of the War of Attrition and the All-Pay Auction," Journal of Economic Theory, Elsevier, vol. 72(2), pages 343-362, February.
  2. Glazer, Amihai & Hassin, Refael, 1988. "Optimal Contests," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 133-43, January.
  3. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Douglas Davis & Robert Reilly, 1998. "Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer," Public Choice, Springer, vol. 95(1), pages 89-115, April.
  5. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
  6. Potters, Jan & de Vries, Casper G. & van Winden, Frans, 1998. "An experimental examination of rational rent-seeking," European Journal of Political Economy, Elsevier, vol. 14(4), pages 783-800, November.
  7. Erwin Amann & Wolfgang Leininger, 1995. "Expected revenue of all-pay and first-price sealed-bid auctions with affiliated signals," Journal of Economics, Springer, vol. 61(3), pages 273-279, October.
  8. Holt, Charles A, Jr & Sherman, Roger, 1982. "Waiting-Line Auctions," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 280-94, April.
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