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Competitive effect of cross-shareholdings in all-pay auctions with complete information

Listed author(s):
  • Fu, Qiang
  • Lu, Jingfeng

This paper investigates the competitive effect of cross-shareholdings in winner-take-all all-pay auctions with two asymmetric bidders. We show that cross-shareholdings may paradoxically create a “pro-competitive” effect and elicit more effort than a standard contest without cross-ownership. This observation runs in contrast to the anti-competitive effect that cross-shareholdings usually create in standard oligopolistic settings (such as Cournot or Bertrand competitions). Both bidding costs and the sizes of cross-shares affect the resultant total effort non-monotonically. Neither a cross-share nor a higher bidding cost necessarily decreases effort supply. A complete account of equilibrium bidding behaviors is provided and the necessary and sufficient conditions under which cross-shareholdings lead to higher or lower levels of overall effort are identified. However, the pro-competitive effect comes at a loss of efficiency.

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File URL: http://www.sciencedirect.com/science/article/pii/S016771871200032X
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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 31 (2013)
Issue (Month): 3 ()
Pages: 267-277

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Handle: RePEc:eee:indorg:v:31:y:2013:i:3:p:267-277
DOI: 10.1016/j.ijindorg.2012.02.004
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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