Simultaneous Signaling in Elimination Contests
AbstractThis paper analyzes the signaling effect of bidding in a two-round elimination contest. Before the final round, bids in the preliminary round are revealed and act as signals of the contestants' private valuations. Depending on his valuation, a contestant may have an incentive to bluff or sandbag in the preliminary round in order to gain an advantage in the final round. I analyze this signaling effect and characterize the equilibrium in this game. Compared to the benchmark model, in which private valuations are revealed automatically before the final round and thus no signaling of bids takes place, I find that strong contestants bluff and weak contestants sandbag. In a separating equilibrium, bids in the preliminary round fully reveal the contestants' private valuations. However, this signaling effect makes the equilibrium bidding strategy in the preliminary round steeper for high valuations and flatter for low valuations compared to the benchmark model.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1184.
Length: 22 pages
Date of creation: May 2008
Date of revision:
all-pay auction; elimination contests; incomplete; lottery; signaling;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-28 (All new papers)
- NEP-CTA-2008-10-28 (Contract Theory & Applications)
- NEP-GTH-2008-10-28 (Game Theory)
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