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Endogenous entry and investment in an all-pay auction

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  • Clark, Derek J.
  • Kundu, Tapas

Abstract

Contests are ubiquitous but do not simply arise in a vacuum. Competitors make conscious decisions before the fighting stage. This paper looks at the interplay between the decision to enter and then undertake a pre-contest investment to enhance the chance of winning the prize. We use an all-pay auction to model the contest stage; investment cost is private information and its return is stochastic. We characterize equilibrium in terms of threshold strategies on the cost parameter, both for the entry and the subsequent investment decision. We show that the stochastic nature of the investment outcome has a non-monotonic effect on players decisions in equilibrium. A contest designer can use our results to directly achieve goals related to the maximization of contest effort, entry fee revenue and investment propensity. In all cases, we demonstrate that limiting entry may be optimal.

Suggested Citation

  • Clark, Derek J. & Kundu, Tapas, 2026. "Endogenous entry and investment in an all-pay auction," Journal of Mathematical Economics, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:mateco:v:122:y:2026:i:c:s030440682500120x
    DOI: 10.1016/j.jmateco.2025.103203
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    References listed on IDEAS

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    Cited by:

    1. Clark, Derek J. & Kundu, Tapas & Nilssen, Tore, 2026. "Investing to get a head start in contests," Journal of Economic Behavior & Organization, Elsevier, vol. 241(C).

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    Keywords

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    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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