[pdx]

That's called a "dollar auction" and it works because the rules are such that the 2nd highest bid still has to pay the money they bid, even though they won't get the prize. Given that incentive structure, it is cheaper for you to pay $21 for a $20 (and lose $1), rather than being the 2nd higher bid at $19, and lose the entire $19.

It is meant as an introduction to other occurrences in peoples lives, where they invest something that they will lose if they abandon the activity. Being on hold is one such example, where you lose the time you've invested in being on hold, if you give up and hang up the call before it's connected. Thus you end up in a situation where you are somewhat trapped.