All-Pay Auction

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DEFINITION of 'All-Pay Auction'

An economic and game theory concept in which participants place silent bids on a particular item. Unlike a standard auction, all-pay auction has everybody pay for their bid, regardless of whether they win the item being sold. Of course, in a standard auction, the highest bid wins the item.



BREAKING DOWN 'All-Pay Auction'

An example of an all-pay auction is a Tullock auction, which is sometimes referred to as a Tullock lottery. Rather than being just another form of commerce, the Tullock auction and other all-pay auctions are largely intellectual pursuits, used to describe economic behaviors.

For example, in a standard auction, a seller might expect to receive fair value for the goods he or she is offering. However, in an all-play auction, overbidding is common and the seller might expect to get better-than-fair value.



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