An all-pay auction is a type of auction in which all participants must pay their bids regardless of whether they win the auction or not. Unlike traditional auctions where only the highest bidder pays their bid amount, in an all-pay auction, every bidder pays what they bid, and the item is awarded to the highest bidder. This type of auction can create unique strategic considerations for bidders, as all participants have to commit their resources upfront.
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In a standard all-pay auction, every player pays its bid or effort cost, and the highest bid receives the prize. With a value , unit effort cost, and winning probability , player has quasilinear utility . Equal highest bids require an explicit tie rule.