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Sequential All-Pay Auctions with Head Starts and Noisy Outputs

  • Ella Segev

    ()

    (Department of Industrial Engineering and Management,Ben-Gurion University of the Negev, Israel)

  • Aner Sela

    ()

    (Economics Department, Ben-Gurion University of the Negev, Ben-Gurion University of the Negev, Israel)

Registered author(s):

    We study a sequential (Stackelberg) all-pay auction with two contestants who are privately informed about a parameter (ability) that affects their cost of effort. Contestant 1 (the fi?rst mover) exerts an effort in the fi?rst period, while contestant 2 (the second mover) observes the effort of contestant 1 and then exerts an effort in the second period. Contestant 2 wins the contest if his effort is larger than or equal to the effort of contestant 1; otherwise, contestant 1 wins. We characterize the unique subgame perfect equilibrium of this sequential all-pay auction and analyze the use of head starts to improve the contestants' performances. We also study this model when contestant 1 exerts an effort in the fi?rst period which translates into an observable output but with some noise. We study two variations of this model where contestant 1 either knows or does not know the realization of the noise before she chooses her effort. Contestant 2 does not know the realization of the noise in both variations. For both variations, we characterize the subgame perfect equilibrium and investigate the effect of a random noise on the contestants' performance.

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    File URL: http://www.ec.bgu.ac.il/monaster/admin/papers/1106.pdf
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    Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 1106.

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    Length: 37pages
    Date of creation: 2011
    Date of revision:
    Handle: RePEc:bgu:wpaper:1106
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    1. Morgan, John, 2003. " Sequential Contests," Public Choice, Springer, vol. 116(1-2), pages 1-18, July.
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    12. 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.
    13. Linster, Bruce G, 1993. " Stackelberg Rent-Seeking," Public Choice, Springer, vol. 77(2), pages 307-21, October.
    14. Arieh Gavious & Benny Moldovanu & Aner Sela, 2002. "Bid Costs and Endogenous Bid Caps," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 709-722, Winter.
    15. Baye, M.R. & Kovenock, D. & De Vries, C., 1992. "The All-Pay Auction with Complete Information," Papers 8-92-1, Pennsylvania State - Department of Economics.
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    17. Robert Akerlof & Richard Holden, 2012. "The nature of tournaments," Economic Theory, Springer, vol. 51(2), pages 289-313, October.
    18. Florian Ederer, 2010. "Feedback and Motivation in Dynamic Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 733-769, 09.
    19. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
    20. Baik, Kyung H & Shogren, Jason F, 1992. "Strategic Behavior in Contests: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 359-62, March.
    21. Moldovanu, Benny & Sela, Aner, 2006. "Contest architecture," Journal of Economic Theory, Elsevier, vol. 126(1), pages 70-96, January.
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    25. Rene Kirkegaard, 2008. "Favoritism in Contests: Head Starts and Handicaps," Working Papers 0805, Brock University, Department of Economics, revised Nov 2008.
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