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Jump Bidding and Budget Constraints in All-Pay Auctions and Wars of Attrition

Author

Listed:
  • Eddie Dekel
  • Matthew Jackson
  • Asher Wolinsky

Abstract

We study all-pay auctions (or wars of attrition), where the highest bidder wins an object, but all bidders pay their bids. We consider such auctions when two bidders alternate in raising their bids and where all aspects of the auction are common knowledge including bidders' valuations. We analyze how the ability to "jump-bid," or raise bids by more than the minimal necessary increment affects the outcome of the auction. We also study the impact of budget caps on total bids. We show that both of these features, which are common in practice but absent from the previous literature, matter signi cantly in determining the outcome of the auctions.

Suggested Citation

  • Eddie Dekel & Matthew Jackson & Asher Wolinsky, 2007. "Jump Bidding and Budget Constraints in All-Pay Auctions and Wars of Attrition," Discussion Papers 1454, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1454
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    Keywords

    All-Pay Auctions; Jump-Bidding; Auctions; War of Attrition.;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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