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On the Continuous Equilibria of Affiliated-Value, All-Pay Auctions with Private Budget Constraints

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  • Maciej H. Kotowski

    ()
    (Harvard Kennedy School)

  • Fei Li

    ()
    (Department of Economics, University of Pennsylvania)

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    Abstract

    We consider all-pay auctions in the presence of interdependent, affiliated valuations and private budget constraints. For the sealed-bid, all-pay auction we characterize a symmetric equilibrium in continuous strategies for the case of N bidders and we investigate its properties. Budget constraints encourage more aggressive bidding among participants with large endowments and intermediate valuations. We extend our results to the war of attrition where we show that budget constraints lead to a uniform amplification of equilibrium bids among bidders with sufficient endownments. An example shows that with both interdependent valuations and private budget constraints, a revenue ranking between the two mechanisms is generally not possible.

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    Bibliographic Info

    Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 12-019.

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    Length: 44 pages
    Date of creation: 23 Apr 2012
    Date of revision:
    Handle: RePEc:pen:papers:12-019

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    Related research

    Keywords: All-Pay Auction; War of Attrition; Budget Constraints; Common Values; Private Values; Affiliation; Contests;

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    References

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    1. Eric Maskin & John Riley, 2003. "Uniqueness of Equilibrium in Sealed High-Bid Auctions," Economics Working Papers, Institute for Advanced Study, School of Social Science 0031, Institute for Advanced Study, School of Social Science.
    2. Patrick Bajari & Ali Hortacsu, 2003. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," NBER Working Papers 9889, National Bureau of Economic Research, Inc.
    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. Lebrun, Bernard, 1999. "First Price Auctions in the Asymmetric N Bidder Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 125-42, February.
    5. Che, Yeon-Koo & Gale, Ian, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(1), pages 1-21, January.
    6. Luciano I. de Castro, 2007. "Affiliation, equilibrium existence and the revenue ranking of auctions," Economics Working Papers we074622, Universidad Carlos III, Departamento de Economía.
    7. Yeon-Koo Che & Ian Gale, 2005. "Revenue Comparisons for Auctions when Bidders Have Arbitrary Types," NajEcon Working Paper Reviews, www.najecon.org 784828000000000012, www.najecon.org.
    8. Athey, Susan & Haile, Philip A., 2007. "Nonparametric Approaches to Auctions," Handbook of Econometrics, Elsevier, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 60 Elsevier.
    9. Krishna, Vijay & Morgan, John, 1997. "An Analysis of the War of Attrition and the All-Pay Auction," Journal of Economic Theory, Elsevier, Elsevier, vol. 72(2), pages 343-362, February.
    10. Leininger, Wolfgang, 1991. "Patent competition, rent dissipation, and the persistence of monopoly: The role of research budgets," Journal of Economic Theory, Elsevier, Elsevier, vol. 53(1), pages 146-172, February.
    11. Fang, Hanming & Parreiras, Sergio O., 2003. "On the failure of the linkage principle with financially constrained bidders," Journal of Economic Theory, Elsevier, Elsevier, vol. 110(2), pages 374-392, June.
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    Cited by:
    1. Li, Fei & Kotowski, Maciej Henryk, 2014. "On the continuous equilibria of affiliated-value, all-pay auctions with private budget constraints," Scholarly Articles 11718166, Harvard Kennedy School of Government.

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