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Silent interests and all-pay auctions

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  • Konrad, Kai Andreas

Abstract

If firms compete in all-pay auctions with complete information, silent shareholdings introduce asymmetric externalities into the all-pay auction framework. If the strongest firm owns a large share in the second strongest firm, this may make the strongest firm abstain from bidding. As a consequence, equilibrium profits of both firms may increase, but the prize may be allocated less efficiently. The reverse ownership structure is also likely to increase the profits of the firms involved in the ownership relationship but without these negative efficiency effects. -- Befinden sich Firmen im Wettkampf in All-Pay Auktionen unter vollständiger Information, so bringen stille Beteiligungen asymmetrische externe Effekte in den gesamten Auktionsrahmen. Hält die stärkste Firma einen großen Anteil an Aktien der zweitstärksten Firma, kann dies die stärkere Firma von weiteren Geboten abhalten. Als Folge vergrößern sich die Profite beider Firmen, sind jedoch weniger effizient verteilt. Das umgekehrte Eigentumsverhältnis hebt voraussichtlich die Gewinne der beteiligten Firmen an, jedoch ohne negative Effizienzauswirkungen.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number SP II 2005-10.

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Date of creation: 2005
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Handle: RePEc:zbw:wzbmpg:spii200510

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Keywords: All-pay auctions; externalities; contests; silent minority shareholdings ¸ownership structure;

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  1. Konrad, Kai A., 2000. "Trade contests," Journal of International Economics, Elsevier, vol. 51(2), pages 317-334, August.
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Citations

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Cited by:
  1. Martin Gonzalez-Eiras & Dirk Niepelt, 2004. "Sustaining Social Security," 2004 Meeting Papers 199, Society for Economic Dynamics.
  2. Meland, Frode & Straume, Odd Rune, 2005. "Outsourcing in Contests," Working Papers in Economics 09/05, University of Bergen, Department of Economics.
  3. Aner Sela, 2012. "Sequential two-prize contests," Economic Theory, Springer, vol. 51(2), pages 383-395, October.
  4. 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.
  5. Lu, Jingfeng, 2012. "Optimal auctions with asymmetric financial externalities," Games and Economic Behavior, Elsevier, vol. 74(2), pages 561-575.
  6. Aner Sela, 2008. "Sequential Two-Prize Contests," Working Papers 0803, Ben-Gurion University of the Negev, Department of Economics.
  7. Bettina Klose & Dan Kovenock J., 2012. "Extremism Drives Out Moderation," CESifo Working Paper Series 3804, CESifo Group Munich.
  8. Konrad, Kai A., 2007. "Strategy in contests: an introduction," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
  9. Hao Jia & Stergios Skaperdas & Samarth Vaidya, 2012. "Contest Functions: Theoretical Foundations and Issues in Estimation," Working Papers 111214, University of California-Irvine, Department of Economics.
  10. Metzger, Lars Peter, 2014. "Invader strategies in the war of attrition with private information," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 160-166.
  11. Sela, Aner, 2008. "Sequential Two-Prize Contests," CEPR Discussion Papers 6769, C.E.P.R. Discussion Papers.
  12. Cohen, Chen & Sela, Aner, 2008. "Allocation of prizes in asymmetric all-pay auctions," European Journal of Political Economy, Elsevier, vol. 24(1), pages 123-132, March.
  13. Fosfuri, Andrea & Rønde, Thomas, 2009. "Leveraging resistance to change and the skunk works model of innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 274-289, October.

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