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All-Pay Auctions with Negative Prize Externalities: Theory and Experimental Evidence

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Author Info
Dario Sacco () (Socioeconomic Institute, University of Zurich)
Armin Schmutzler () (Socioeconomic Institute, University of Zurich)

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Abstract

The paper characterizes the mixed-strategy equilibria in all-pay auctions with endogenous prizes that depend positively on own effort and negatively on the effort of competitors. Such auctions arise naturally in the context of investment games, lobbying games, and promotion tournaments. We also provide an experimental analysis of a special case which captures the strategic situation of a two-stage game with investment preceding homogenous Bertrand competition. We obtain overinvestment both relative to the mixed-strategy equilibrium and the social optimum.

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Publisher Info
Paper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0806.

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Length: 34 pages
Date of creation: May 2008
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Handle: RePEc:soz:wpaper:0806

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Related research
Keywords: All-pay auctions; oligopoly; investment; experiment; overbidding;

Other versions of this item:

Find related papers by JEL classification:
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dennis Gaertner & Armin Schmutzler, 2006. "Merger Negotiations and Ex-Post Regret," Working Papers 0607, University of Zurich, Socioeconomic Institute, revised Dec 2007. [Downloadable!]
    Other versions:
  2. Fabian Waltert & Felix Schlaepfer, 2007. "The role of landscape amenities in regional development: a survey of migration, regional economic and hedonic pricing studies," Working Papers 0710, University of Zurich, Socioeconomic Institute. [Downloadable!]
  3. Helga Fehr & Thomas Epper & Adrian Bruhin & Renate Schubert, 2007. "Risk and Rationality: The Effect of Incidental Mood on Probability Weighting," Working Papers 0703, University of Zurich, Socioeconomic Institute. [Downloadable!]
  4. Adrian Bruhin & Thomas Epper, 2007. "Risk and Rationality: Uncovering Heterogeneity in Probability Distortion," Working Papers 0705, University of Zurich, Socioeconomic Institute, revised Jul 2007. [Downloadable!]
  5. Rafael Lalive & Armin Schmutzler, 2005. "Exploring the Effects of Competition for Railway Markets," Working Papers 0511, University of Zurich, Socioeconomic Institute, revised Apr 2007. [Downloadable!]
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  6. Hans Gersbach & Armin Schmutzler, 2006. "A Product-Market Theory of Industry-Specific Training," Working Papers 0610, University of Zurich, Socioeconomic Institute. [Downloadable!]
  7. Philippe Mahler & Rainer Winkelmann, 2005. "Single Motherhood and (Un)Equal EducationalOpportunities: Evidence for Germany," Working Papers 0512, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  8. Hans Gersbach & Armin Schmutzler, 2006. "Foreign Direct Investment and R&D offshoring," Working Papers 0606, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  9. Felix Schlaepfer, 2007. "An analysis of the Swiss vote on the use of genetically modified crops," Working Papers 0717, University of Zurich, Socioeconomic Institute. [Downloadable!]
  10. Rafael Lalive & Armin Schmutzler, 2006. "Entry in liberalized railway markets: The German experience," Working Papers 0609, University of Zurich, Socioeconomic Institute, revised Apr 2007. [Downloadable!]
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  11. Stefan Boes & Markus Lipp & Rainer Winkelmann, 2005. "Money Illusion Under Test," Working Papers 0514, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  12. Adrian Bruhin & Rainer Winkelmann, 2007. "Happiness Functions with Preference Interdependence and Heterogeneity: The Case of Altruism within the Family," Working Papers 0702, University of Zurich, Socioeconomic Institute, revised Feb 2008. [Downloadable!]
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  13. Josef Falkinger, 2008. "Between Agora and Shopping Mall," Working Papers 0805, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  14. Stefan Buehler & Christian Kaiser & Franz Jaeger, 2007. "On the Geographic and Cultural Determinants of Bankruptcy," Working Papers 0701, University of Zurich, Socioeconomic Institute, revised Jun 2007. [Downloadable!]
  15. Stefan Boes & Kevin Staub & Rainer Winkelmann, 2007. "Hedonic Adaptation to Living Standards and the Hidden Cost of Parental Income," Working Papers 0713, University of Zurich, Socioeconomic Institute. [Downloadable!]
  16. Gersbach, Hans & Schmutzler, Armin, 2007. "Does Globalization Create Superstars?," CEPR Discussion Papers 6222, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  17. Stefan Boes, 2007. "Nonparametric Analysis of Treatment Effects in Ordered Response Models," Working Papers 0709, University of Zurich, Socioeconomic Institute. [Downloadable!]
  18. Adrian Bruhin, 2008. "Stochastic Expected Utility and Prospect Theory in a Horse Race: A Finite Mixture Approach," Working Papers 0803, University of Zurich, Socioeconomic Institute. [Downloadable!]
  19. Dennis Gaertner, 2007. "Why Bayes Rules: A Note on Bayesian vs. Classical Inference in Regime Switching Models," Working Papers 0719, University of Zurich, Socioeconomic Institute. [Downloadable!]
  20. Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, vol. 44(2), pages 217-226, August. [Downloadable!] (restricted)
  21. Stefan Boes & Rainer Winkelmann, 2006. "The Effect of Income on Positive and Negative Subjective Well-Being," Working Papers 0605, University of Zurich, Socioeconomic Institute. [Downloadable!]
  22. Daniel Halbheer & Ernst Fehr & Lorenz Goette & Armin Schmutzler, 2007. "Self-Reinforcing Market Dominance," Working Papers 0711, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
  23. Donja Darai & Dario Sacco & Armin Schmutzler, 2009. "Competition and Innovation: An Experimental Investigation," Working Papers 0608, University of Zurich, Socioeconomic Institute, revised Apr 2007. [Downloadable!]
    Other versions:
  24. Helga Fehr-Duda & Adrian Bruhin & Thomas Epper & Renate Schubert, 2007. "Rationality on the Rise: Why Relative Risk Aversion Increases with Stake Size," Working Papers 0708, University of Zurich, Socioeconomic Institute, revised Feb 2008. [Downloadable!]
  25. Armin Schmutzler, 2007. "The relation between competition and innovation – Why is it such a mess?," Working Papers 0716, University of Zurich, Socioeconomic Institute. [Downloadable!]
  26. Felix Schlaepfer, 2007. "Contingent valuation: a new perspective," Working Papers 0715, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  27. Stefan Boes, 2007. "Count Data Models with Unobserved Heterogeneity: An Empirical Likelihood Approach," Working Papers 0704, University of Zurich, Socioeconomic Institute. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ilja Neustadt & Peter Zweifel, 2009. "Social Mobility and Preferences for Income Redistribution: Evidence from a Discrete Choice Experiment," Working Papers 0909, University of Zurich, Socioeconomic Institute. [Downloadable!]
  2. Maurus Rischatsch & Maria Trottmann, 2009. "Physician dispensing and the choice between generic and brand-name drugs – Do margins affect choice?," Working Papers 0911, University of Zurich, Socioeconomic Institute. [Downloadable!]
  3. Maurus Rischatsch, 2009. "Simulating WTP Values from Random-Coefficient Models," Working Papers 0912, University of Zurich, Socioeconomic Institute. [Downloadable!]
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