Auctions for Priority Access

Brennan Platt
Economics, Brigham Young University

     Full text: Not available
     Last modified: December 2, 2010
     Presentation date: 03/12/2011 9:00 AM in NH 1140, Session C
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Abstract
This paper analyzes an all-pay auction which allocates a divisible good by granting customers access in order of their bids. In turn, each can purchase as many units as desired at a set price until supply is exhausted. This auction has immediate application to awarding political rents and to queuing as a rationing mechanism.

This auction implements a two-part tariff, allowing the seller to capture nearly all rents. Revenue is greatest when bidders have similar valuations, and when available supply prevents one bidder from making a purchase. Unlike all-pay auctions of an indivisible prize, the exclusion principle --- that revenues increase when the strictly-highest-valuation bidder is excluded from participation --- does not always hold.

The auction is also compared to lotteries for priority access, an extension of single prize contests. The auction raises more revenue than the lottery when agents' valuations are not too different. Also, the auction is typically more efficient, resulting in higher expected total welfare.