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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.

Suggested Citation

  • Fu, Qiang & Lu, Jingfeng, 2013. "Competitive effect of cross-shareholdings in all-pay auctions with complete information," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 267-277.
    • Handle: RePEc:eee:indorg:v:31:y:2013:i:3:p:267-277
    DOI: 10.1016/j.ijindorg.2012.02.004
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    More about this item

    Keywords

    All-pay auction; Cross-shareholding; Effort supply; Asymmetric bidders; Virtual bidding costs;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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