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Competitive effect of cross-shareholdings in all-pay auctions with complete information

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  • Fu, Qiang
  • Lu, Jingfeng

Abstract

This paper investigates the competitive effect of cross-shareholdings in winner-take-all all-pay auctions with two asymmetric bidders. We show that cross-shareholdings may paradoxically create a “pro-competitive” effect and elicit more effort than a standard contest without cross-ownership. This observation runs in contrast to the anti-competitive effect that cross-shareholdings usually create in standard oligopolistic settings (such as Cournot or Bertrand competitions). Both bidding costs and the sizes of cross-shares affect the resultant total effort non-monotonically. Neither a cross-share nor a higher bidding cost necessarily decreases effort supply. A complete account of equilibrium bidding behaviors is provided and the necessary and sufficient conditions under which cross-shareholdings lead to higher or lower levels of overall effort are identified. However, the pro-competitive effect comes at a loss of efficiency.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 31 (2013)
Issue (Month): 3 ()
Pages: 267-277

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Handle: RePEc:eee:indorg:v:31:y:2013:i:3:p:267-277

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: All-pay auction; Cross-shareholding; Effort supply; Asymmetric bidders; Virtual bidding costs;

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References

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  1. Baye, M.R. & Kovenock, D. & De Vries, C., 1992. "The All-Pay Auction with Complete Information," Papers 8-92-1, Pennsylvania State - Department of Economics.
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