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Asymmetric Contests with Conditional Investments

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  • Ron Siegel
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    Abstract

    This paper studies equilibrium behavior in a class of games that models asymmetric competitions with unconditional and conditional investments. Such competitions include lobbying settings, labor-market tournaments, and R& races, among others. I provide an algorithm that constructs the unique equilibrium in these games and apply it to study competitions in which a fraction of each competitor's investment is sunk and the rest is paid only by the winners. Complete-information all-pay auctions are a special case. (JEL D44, D72, D82)

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2230
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 100 (2010)
    Issue (Month): 5 (December)
    Pages: 2230-60

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    Handle: RePEc:aea:aecrev:v:100:y:2010:i:5:p:2230-60

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    References

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    1. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
    2. Arye Hillman & Dov Samet, 1987. "Dissipation of contestable rents by small numbers of contenders," Public Choice, Springer, Springer, vol. 54(1), pages 63-82, January.
    3. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1992. "Rigging the Lobbying Process: An Application of the All- Pay Auction," Papers, Pennsylvania State - Department of Economics 9-92-2, Pennsylvania State - Department of Economics.
    4. Ellingsen, Tore, 1991. "Strategic Buyers and the Social Cost of Monopoly," American Economic Review, American Economic Association, American Economic Association, vol. 81(3), pages 648-57, June.
    5. Daniele Condorelli, 2009. "What money can't buy: allocations with priority lists, lotteries and queues," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1482, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Parreiras, Sérgio O. & Rubinchik, Anna, 2010. "Contests with three or more heterogeneous agents," Games and Economic Behavior, Elsevier, vol. 68(2), pages 703-715, March.
    7. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 841-64, October.
    8. Barut, Yasar & Kovenock, Dan, 1998. "The symmetric multiple prize all-pay auction with complete information," European Journal of Political Economy, Elsevier, vol. 14(4), pages 627-644, November.
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    Cited by:
    1. Bos, Olivier & Ranger, Martin, 2013. "All-Pay Auctions with Polynomial Rewards," MPRA Paper 47587, University Library of Munich, Germany.
    2. Jönsson, Stefan & Schmutzler, Armin, 2013. "All-Pay Auctions: Implementation and Optimality," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9323, C.E.P.R. Discussion Papers.
    3. Theodore L. Turocy & Lucas Rentschler, 2014. "All-pay auctions with interdependent valuations: The highly competitive case," University of East Anglia Applied and Financial Economics Working Paper Series, School of Economics, University of East Anglia, Norwich, UK. 063, School of Economics, University of East Anglia, Norwich, UK..
    4. Kaplan, Todd R & Zamir, Shmuel, 2014. "Advances in Auctions," MPRA Paper 54656, University Library of Munich, Germany.
    5. David Pérez-Castrillo & David Wettstein, 2014. "Innovation Contests," CESifo Working Paper Series 4712, CESifo Group Munich.
    6. Franke, Jörg & Kanzow, Christian & Leininger, Wolfgang & Schwartz, Alexandra, 2013. "Lottery versus All-Pay Auction Contests: A Revenue Dominance Theorem," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79998, Verein für Socialpolitik / German Economic Association.
    7. Zhiguo He & Gregor Matvos, 2012. "Debt and Creative Destruction: Why Could Subsidizing Corporate Debt be Optimal?," NBER Working Papers 17920, National Bureau of Economic Research, Inc.
    8. Szech, Nora & Weinschenk, Philipp, 2013. "Rebates in a Bertrand game," Journal of Mathematical Economics, Elsevier, vol. 49(2), pages 124-133.
    9. Christian Ewerhart, 2014. "Elastic contests and the robustness of the all-pay auctions," ECON - Working Papers, Department of Economics - University of Zurich 155, Department of Economics - University of Zurich.
    10. Matthias Kräkel & Frauke Lammers & Nora Szech, 2011. "Externalities in Recruiting," Bonn Econ Discussion Papers, University of Bonn, Germany bgse02_2011, University of Bonn, Germany.
    11. Ron Siegel, 2014. "Contests with productive effort," International Journal of Game Theory, Springer, Springer, vol. 43(3), pages 515-523, August.
    12. Julio González-Díaz & Ron Siegel, 2013. "Matching and price competition: beyond symmetric linear costs," International Journal of Game Theory, Springer, Springer, vol. 42(4), pages 835-844, November.
    13. Dmitry Orlov, 2014. "Optimal Design of Internal Disclosure," 2014 Meeting Papers, Society for Economic Dynamics 314, Society for Economic Dynamics.
    14. Bettina Klose & Dan Kovenock J., 2012. "Extremism Drives Out Moderation," CESifo Working Paper Series 3804, CESifo Group Munich.
    15. Hirata, Daisuke, 2014. "A model of a two-stage all-pay auction," Mathematical Social Sciences, Elsevier, Elsevier, vol. 68(C), pages 5-13.

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