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Lottery versus All-Pay Auction Contests: A Revenue Dominance Theorem

Author

Listed:
  • Franke, Jörg
  • Kanzow, Christian
  • Leininger, Wolfgang
  • Schwartz, Alexandra

Abstract

We allow a contest organizer to bias a contest in a discriminatory way, that is, she can favor specific contestants through the choice of contest success functions in order to maximize total equilibrium effort (resp. revenue). The scope for revenue enhancement through biasing is analyzed and compared for the two predominant contest regimes; i.e. all-pay auctions and lottery contests. Our main result reveals that an appropriately biased all-pay auction revenue dominates the optimally biased lottery contest for all levels of heterogeneity among contestants. Moreover, such a biased all-pay auction will never make use of the celebrated exclusion principle advanced by Baye et al. (1993).
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Suggested Citation

  • Franke, Jörg & Kanzow, Christian & Leininger, Wolfgang & Schwartz, Alexandra, 2014. "Lottery versus All-Pay Auction Contests: A Revenue Dominance Theorem," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 86031, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:86031
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/86031/
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    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

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