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Effect of reimbursement on all-pay auction

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  • Minchuk, Yizhaq

Abstract

We study all-pay auctions with winners’ reimbursement. This study is conducted under incomplete information with non-linear effort functions. We show that when the cost of effort is concave, the expected revenue in all-pay auctions with reimbursement is higher than the expected revenue in all-pay auctions without reimbursement. However, when the cost of effort is convex, the expected revenue in all-pay auctions without reimbursement is higher. The results of this paper supply a justification to apply reimbursement in contests as part of a mechanism to increase expected revenue. This is especially true in contests where applying new technologies results in decreasing the marginal costs of efforts.

Suggested Citation

  • Minchuk, Yizhaq, 2018. "Effect of reimbursement on all-pay auction," Economics Letters, Elsevier, vol. 172(C), pages 28-30.
    • Handle: RePEc:eee:ecolet:v:172:y:2018:i:c:p:28-30
    DOI: 10.1016/j.econlet.2018.08.014
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    References listed on IDEAS

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    1. Yizhaq Minchuk & Aner Sela, 2020. "Contests with insurance," Review of Economic Design, Springer;Society for Economic Design, vol. 24(1), pages 1-22, June.
    2. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June.
    3. Michael Baye & Dan Kovenock & Casper Vries, 2012. "Contests with rank-order spillovers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 315-350, October.
    4. Moldovanu, Benny & Sela, Aner, 2006. "Contest architecture," Journal of Economic Theory, Elsevier, vol. 126(1), pages 70-96, January.
    5. Alexander Matros & Daniel Armanios, 2009. "Tullock’s contest with reimbursements," Public Choice, Springer, vol. 141(1), pages 49-63, October.
    6. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
    7. Ron Siegel, 2010. "Asymmetric Contests with Conditional Investments," American Economic Review, American Economic Association, vol. 100(5), pages 2230-2260, December.
    8. Moulin, Herve, 1996. "Cost Sharing under Increasing Returns: A Comparison of Simple Mechanisms," Games and Economic Behavior, Elsevier, vol. 13(2), pages 225-251, April.
    9. Matros, Alexander, 2012. "Sad-Loser contests," Journal of Mathematical Economics, Elsevier, vol. 48(3), pages 155-162.
    10. Cohen, Chen & Sela, Aner, 2005. "Manipulations in contests," Economics Letters, Elsevier, vol. 86(1), pages 135-139, January.
    11. G. Thomas Sav, 2004. "Higher education costs and scale and scope economies," Applied Economics, Taylor & Francis Journals, vol. 36(6), pages 607-614.
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    Cited by:

    1. Sosung Baik & Sung-Ha Hwang, 2021. "Auction design with ambiguity: Optimality of the first-price and all-pay auctions," Papers 2110.08563, arXiv.org.
    2. Konstantinos Protopappas, 2023. "Manipulation of moves in sequential contests," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 61(3), pages 511-535, October.
    3. Minchuk, Yizhaq & Sela, Aner, 2023. "Subsidy and taxation in all-pay auctions under incomplete information," Games and Economic Behavior, Elsevier, vol. 140(C), pages 99-114.
    4. Yizhaq Minchuk & Aner Sela, 2020. "Contests with insurance," Review of Economic Design, Springer;Society for Economic Design, vol. 24(1), pages 1-22, June.
    5. Liu, Yong & Liu, Shulin, 2019. "Effects of risk aversion on all-pay auction with reimbursement," Economics Letters, Elsevier, vol. 185(C).

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    More about this item

    Keywords

    All-pay auctions; Reimbursement;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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