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Contests with small noise and the robustness of the all-pay auction

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  • Christian Ewerhart

Abstract

This paper considers all-pay contests in which the relationship between bids and allocations reflects a small amount of noise. Prior work had focused on one particular equilibrium. However, there may be other equilibria. To address this issue, we introduce a new and intuitive measure for the proximity to the all-pay auction. This allows, in particular, to provide simple conditions under which actually any equilibrium of the contest is both payoff equivalent and revenue equivalent to the unique equilibrium of the corresponding all-pay auction. The results are shown to have powerful implications for monopoly licensing, political lobbying, electoral competition, optimally biased contests, the empirical analysis of rent-seeking, and dynamic contests.

Suggested Citation

  • Christian Ewerhart, 2015. "Contests with small noise and the robustness of the all-pay auction," ECON - Working Papers 186, Department of Economics - University of Zurich, revised Jun 2017.
    • Handle: RePEc:zur:econwp:186
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    Cited by:

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    2. David K. Levine & Andrea Mattozzi, 2022. "Success in contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(2), pages 595-624, April.
    3. Dan Kovenock & Brian Roberson & Roman M. Sheremeta, 2019. "The attack and defense of weakest-link networks," Public Choice, Springer, vol. 179(3), pages 175-194, June.
    4. Ewerhart, Christian, 2017. "Revenue ranking of optimally biased contests: The case of two players," Economics Letters, Elsevier, vol. 157(C), pages 167-170.
    5. Fu, Qiang & Wang, Xiruo & Wu, Zenan, 2021. "Multi-prize contests with risk-averse players," Games and Economic Behavior, Elsevier, vol. 129(C), pages 513-535.
    6. Feng, Xin & Lu, Jingfeng, 2018. "How to split the pie: Optimal rewards in dynamic multi-battle competitions," Journal of Public Economics, Elsevier, vol. 160(C), pages 82-95.
    7. Feng, Xin & Lu, Jingfeng, 2017. "Uniqueness of equilibrium in two-player asymmetric Tullock contests with intermediate discriminatory power," Economics Letters, Elsevier, vol. 159(C), pages 61-64.
    8. Bruckner, Dominik & Sahm, Marco, 2023. "Party Politics: A Contest Perspective," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277714, Verein für Socialpolitik / German Economic Association.
    9. Morgan, John & Tumlinson, Justin & Várdy, Felix, 2022. "The limits of meritocracy," Journal of Economic Theory, Elsevier, vol. 201(C).
    10. Bo Chen & Shanlin Jin, 2023. "Elimination contests with collusive team players," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(1), pages 61-89, February.
    11. Xiaotie Deng & Yotam Gafni & Ron Lavi & Tao Lin & Hongyi Ling, 2021. "From Monopoly to Competition: Optimal Contests Prevail," Papers 2107.13363, arXiv.org.
    12. Laica, Christoph & Lauber, Arne & Sahm, Marco, 2021. "Sequential round-robin tournaments with multiple prizes," Games and Economic Behavior, Elsevier, vol. 129(C), pages 421-448.
    13. Subhasish M. Chowdhury & Patricia Esteve‐González & Anwesha Mukherjee, 2023. "Heterogeneity, leveling the playing field, and affirmative action in contests," Southern Economic Journal, John Wiley & Sons, vol. 89(3), pages 924-974, January.
    14. Fu, Qiang & Wu, Zenan & Zhu, Yuxuan, 2023. "On equilibrium uniqueness in generalized multi-prize nested lottery contests," Games and Economic Behavior, Elsevier, vol. 139(C), pages 180-199.
    15. Barbieri, Stefano & Serena, Marco, 2022. "Biasing dynamic contests between ex-ante symmetric players," Games and Economic Behavior, Elsevier, vol. 136(C), pages 1-30.

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    More about this item

    Keywords

    Contests; increasing returns; mixed-strategy Nash equilibrium; robustness of the all-pay auction; payoff equivalence; revenue equivalence;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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