Resource allocation with costly participation
Ali Kakhbod

TL;DR
This paper introduces a new all-pay auction model with risk-loving bidders paying a constant fee, characterizes its equilibrium, and analyzes how seller revenue depends on auction parameters and re-entry options.
Contribution
It develops a unique equilibrium analysis for the proposed auction format and fully characterizes the seller's expected revenue under different re-entry conditions.
Findings
Seller's revenue increases with object value and decreases with sale price and bidding fee.
Re-entry options can significantly enhance seller revenue and auction efficiency.
Risk-loving bidders can generate revenue exceeding the object's value.
Abstract
We propose a new all-pay auction format in which risk-loving bidders pay a constant fee each time they bid for an object whose monetary value is common knowledge among the bidders, and bidding fees are the only source of benefit for the seller. We show that for the proposed model there exists a {unique} Symmetric Subgame Perfect Equilibrium (SSPE). The characterized SSPE is stationary when re-entry in the auction is allowed, and it is Markov perfect when re-entry is forbidden. Furthermore, we fully characterize the expected revenue of the seller. Generally, with or without re-entry, it is more beneficial for the seller to choose (value of the object), (sale price), and (bidding fee) such that becomes sufficiently large. In particular, when re-entry is permitted: the expected revenue of the seller is \emph{independent} of the number of bidders, decreasing in…
Peer Reviews
No public reviews on file for this paper yet. If you reviewed it on a platform where reviews are public (OpenReview, ICLR, NeurIPS, ICML), you can paste yours below so the community can read it here.
Videos
No videos yet. Explain this paper in a talk, walkthrough, or lecture? Add one.
Taxonomy
TopicsEconomic theories and models · Complex Systems and Time Series Analysis · Decision-Making and Behavioral Economics
