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

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Author Info

  • Maciej H. Kotowski

    ()
    (John F. Kennedy School of Government, Harvard University)

  • Fei Li

    ()
    (Department of Economics University of North Carolina)

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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. 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 endowments. An example shows that with both interdependent valuations and private budget constraints, a revenue ranking between the two auction formats is generally not possible. Equilibria with discontinuous bidding strategies are discussed.

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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 14-001.

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Length: 57 pages
Date of creation: 23 Apr 2012
Date of revision: 10 Jan 2014
Handle: RePEc:pen:papers:14-001

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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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  1. Yeon-Koo Che & Ian Gale, 2005. "Revenue Comparisons for Auctions when Bidders Have Arbitrary Types," NajEcon Working Paper Reviews 784828000000000012, www.najecon.org.
  2. Che, Yeon-Koo & Gale, Ian, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 1-21, January.
  3. Fang, Hanming & Parreiras, Sergio O., 2002. "Equilibrium of Affiliated Value Second Price Auctions with Financially Constrained Bidders: The Two-Bidder Case," Games and Economic Behavior, Elsevier, vol. 39(2), pages 215-236, May.
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