Most bidders lose an auction. In an all-pay auction, most bidders really lose.
In a standard auction, people submit bids for some prize, but only the highest bidder actually pays. Meanwhile, the rules of an all-pay auction force everyone to pay, whether they win or not.
The all-pay auction largely exists as a theoretical concept, popular in game theory and in other related economic debates. Conceptually, an all-pay auction should increase the amount the seller gets for the prize, while in theory (you'll notice we're using the word "theory" a lot here) efficient strategy on the buyer's part could lower their costs as well.
After all, traditional lotteries could be described as one-price all-pay auctions where you can choose to bid $1 for a $300 million prize (in that case, you can also vary your bid by buying additional tickets, which do - ever so incrementally - improve your chances to win). But of course, most lottery players lose money over time.
All-pay auctions are also used as metaphors for other aspects of life, such as biological functions. Two rams battling over the affections of a female sheep are engaged in an all-pay auction, since each pays with a headache (or worse) no matter which one wins. In theory, anyway.
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Finance: What is an Auction Market?13 Views
Finance a la shmoop... what is an auction market.. next up on the block [Man speaking on stage]
we've got stock in the company comb Depot....
okay yeah so the New York
Stock Exchange is an auction market and you have no idea how much caffeine I had [Man holding a monster energy drink]
to have to get that right which means that the prices on the new york stock
exchange happen during a bidding process we're matching offers get you know [People frantically rushing to bid for stocks]
matched... buyers and sellers buy and sell at the
same time so in essence two transactions are happening at once the opposite of
this sort of market is the over the counter or OTC market where dealers are
the ones holding all the cards and they ultimately determine the price by [Dealer with the cards]
creating a spread from where they're willing to sell your shares and what
price they'll pay to buy your shares but in an OTC market well you don't get to [Dogs running side by side]
feel like you're watching the last leg of a greyhound race so you don't get all
my caffeinated auction talk there which is kind of cool we like that, right..right?
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