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Contests with Rank-Order Spillovers

  • Michael R. Baye

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Dan Kovenock

    (University of Iowa)

  • Casper G. de Vries

    (Tinbergen Institute and Erasmus University Rotterdam)

This paper presents a unified framework for characterizing symmetric equilibrium in simultaneous move, two-player, rank-order contests with complete information, in which each player’s strategy generates direct or indirect affine “spillover” effects that depend on the rank-order of her decision variable. These effects arise in natural interpretations of a number of important economic environments, as well as in classic contests adapted to recent experimental and behavioral models where individuals exhibit inequality aversion or regret. We provide the closed-form solution for the symmetric Nash equilibria of this class of games, and show how it can be used to directly solve for equilibrium behavior in auctions, pricing games, tournaments, R&D races, models of litigation, and a host of other contests.

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File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2008-20-baye-kovenock-devries.pdf
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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2008-20.

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Date of creation: Nov 2008
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Handle: RePEc:iuk:wpaper:2008-20
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