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Buying winners

Author

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  • Louis-Sidois, Charles

Abstract

Two principals with heterogenous budgets compete to buy the best agent (the winner). First, the principals make initial offers to the agents before the winner is known. Then, if the winner has not accepted any offer, the principals make a second round of offers after the winner is revealed. In equilibrium, the principal with the higher budget offers her entire budget to the winner after he is revealed. The principal with the lower budget makes an offer to one agent before the winner is revealed. The timing of offers favors the high-budget principal: the low-budget principal faces adverse selection because only an agent with a low win probability accepts her offer. Moreover, the probability that the high-budget principal buys the winner increases with the number of agents. Finally, limiting pre-revelation offers favors the high-budget principal, while the opposite is true for post-revelation limits.

Suggested Citation

  • Louis-Sidois, Charles, 2024. "Buying winners," Games and Economic Behavior, Elsevier, vol. 143(C), pages 1-11.
    • Handle: RePEc:eee:gamebe:v:143:y:2024:i:c:p:1-11
    DOI: 10.1016/j.geb.2023.10.016
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    More about this item

    Keywords

    Adverse selection; Colonel Blotto; Contests;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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