Charity Auctions for the Happy Few¤ Olivier Bosy April 16, 2007 Abstract Recent literature has shown that all-pay auctions raise more money for charity than winner- pay auctions. We demonstrate that the first and second-price winner-pay auctions outper- form first-price all-pay auctions when bidders are sufficiently asymmetric. To prove it, we consider a framework with complete information. This analysis is relevant for two main reasons. On the one hand, complete information is more realistic and corresponds to events which occur for instance in a local service club (like in a voluntary organization) or in a show business dinner. Potential bidders are ac- quaintances or know one another well. On the other hand, our model keeps the qualitative predictions of a private value model under incomplete information in which bidders are ex ante asymmetric that is to say different bidders’ values are drawn from different distribu- tions. Furthermore, we also analyze second-price all-pay auction. Finally, we show that individual minimum bids could improve the relative revenue performance of first-price all- pay compared to first-price winner-pay auction. Keywords: All-pay auctions, charity, complete information, externalities JEL Classification: D44, D62, D64 ¤I would like to thank Gabrielle Demange, David Ettinger, Philippe Jehiel and Laurent Lamy for helpful conversations. All errors are mine. yPSE (Paris-Jourdan Sciences Economiques/Paris School of Economics), 48 boulevard Jourdan, 75014 Paris, France. Email:
[email protected], phone: (+33)143136314. 1 1 Introduction More and more voluntary organizations wish to raise money for charity purposes through a partnership with firms.