Dollar auctions can get competitors stuck in an irrational spiral.

The key dynamic of a dollar auction is that all of the bidders pay–even if they don't win the prize.

When the initial bids are below a dollar, it obviously makes sense to bid up to beat your competitor.

But even when the bid rises above a dollar, if you've already bid, it still makes sense to bid incrementally more than your competitor.

That's because if you don't win then you'll lose what you bid, and a tiny incremental bid seems reasonable compared to a guaranteed loss.

This dynamic drives a lot of oddities in VC funded businesses.