The all-pay auction with complete information and identity-dependent externalities
AbstractWe derive a necessary and sufficient condition for the existence of equilibria with only two active players in the all-pay auction with complete information and identity-dependent externalities. This condition shows that the generic equilibrium of the standard all-pay auction is robust to the introduction of "small" identity-dependent externalities. In general, however, the presence of identity-dependent externalities invalidates well-established qualitative results concerning the set of equilibria of the first-price all-pay auction with complete information. With identity-dependent externalities equilibria are generally not payoff equivalent, and identical players may earn different payoffs in equilibrium. These observations show that Siegel’s (2009) results characterizing the set of equilibrium payoffs in all-pay contests, including the all-pay auction as a special case, do not extend to environments with identity-dependent externalities. We further compare the all-pay auction with identity-dependent externalities to the first-price winner-pay auction with identity-dependent externalities. We demonstrate that the equilibrium payoffs of the all-pay auction and winner-pay auction cannot be ranked unambiguously in the presence of identity-dependent externalities by providing examples of environments where equilibrium payoffs in the all-pay auction dominate those in the winner-pay auction and vice versa.
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Bibliographic InfoPaper provided by Department of Economics - University of Zurich in its series ECON - Working Papers with number 118.
Date of creation: Apr 2013
Date of revision:
All-pay auction; identity-dependent externalities; payoff nonequivalence; political conflict;
Other versions of this item:
- Bettina Klose & Dan Kovenock, 2013. "The All-Pay Auction with Complete Information and Identity-Dependent Externalities," Working Papers 13-10, Chapman University, Economic Science Institute.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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