IDEAS home Printed from https://ideas.repec.org/p/mpi/wpaper/tax-mpg-rps-2015-15.html
   My bibliography  Save this paper

To deter or to moderate? Alliance formation in contests with incomplete information

Author

Listed:
  • Kai A. Konrad
  • Florian Morath

Abstract

We consider two players' choice about the formation of an alliance ahead of conflict in a framework with incomplete information about the strength of co-players. When deciding on alliance formation, players anticipate the self-selection of other players and the informational value of own and other players' choices. In the absence of these signaling effects, strong players have an incentive to stand alone, which leads to a separating equilibrium. This separating equilibrium can be destabilized by deception incentives if beliefs are updated on the basis of endogenous alliance formation choices. Weak players may find it attractive to appear strong in order to deter competitors from positive effort choices. Strong players may find it attractive to appear weak in order to give their competitors a false sense of security and then beat them with little effort. Moreover, appearing weak allows players to free-ride when alliances are formed.

Suggested Citation

  • Kai A. Konrad & Florian Morath, 2015. "To deter or to moderate? Alliance formation in contests with incomplete information," Working Papers tax-mpg-rps-2015-15, Max Planck Institute for Tax Law and Public Finance.
  • Handle: RePEc:mpi:wpaper:tax-mpg-rps-2015-15
    as

    Download full text from publisher

    File URL: http://www.tax.mpg.de/RePEc/mpi/wpaper/TAX-MPG-RPS-2015-15.pdf
    File Function: Full text (original version)
    Download Restriction: no

    References listed on IDEAS

    as
    1. repec:cup:apsrev:v:95:y:2001:i:03:p:663-672_00 is not listed on IDEAS
    2. Konrad, Kai A. & Kovenock, Dan, 2009. "The alliance formation puzzle and capacity constraints," Economics Letters, Elsevier, vol. 103(2), pages 84-86, May.
    3. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, March.
    4. Michael Baye & Dan Kovenock & Casper Vries, 2012. "Contests with rank-order spillovers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 315-350, October.
    5. Konishi, Hideo & Ray, Debraj, 2003. "Coalition formation as a dynamic process," Journal of Economic Theory, Elsevier, vol. 110(1), pages 1-41, May.
    6. Herbst, Luisa & Konrad, Kai A. & Morath, Florian, 2015. "Endogenous group formation in experimental contests," European Economic Review, Elsevier, vol. 74(C), pages 163-189.
    7. Ray, Debraj & Vohra, Rajiv, 1997. "Equilibrium Binding Agreements," Journal of Economic Theory, Elsevier, vol. 73(1), pages 30-78, March.
    8. Dan Kovenock & Michael R. Baye & Casper G. de Vries, 1996. "The all-pay auction with complete information (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 291-305.
    9. Cédric Wasser, 2013. "Incomplete information in rent-seeking contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(1), pages 239-268, May.
    10. Florian Morath & Johannes Münster, 2013. "Information acquisition in conflicts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(1), pages 99-129, September.
    11. Kai Konrad, 2012. "Information alliances in contests with budget limits," Public Choice, Springer, vol. 151(3), pages 679-693, June.
    12. Dan Kovenock & Brian Roberson, 2012. "Coalitional Colonel Blotto Games with Application to the Economics of Alliances," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(4), pages 653-676, August.
    13. Debraj Ray & Rajiv Vohra, 2015. "The Farsighted Stable Set," Econometrica, Econometric Society, vol. 83(3), pages 977-1011, May.
    14. Konrad, Kai A., 2002. "Investment in the absence of property rights; the role of incumbency advantages," European Economic Review, Elsevier, vol. 46(8), pages 1521-1537, September.
    15. Amann, Erwin & Leininger, Wolfgang, 1996. "Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case," Games and Economic Behavior, Elsevier, vol. 14(1), pages 1-18, May.
    16. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-1064, July.
    17. Kai A. Konrad, 2004. "Altruism and envy in contests: An evolutionarily stable symbiosis," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 22(3), pages 479-490, June.
    18. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    19. Martin Kolmar & Andreas Wagener, 2013. "Inefficiency As A Strategic Device In Group Contests Against Dominant Opponents," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2083-2095, October.
    20. Alcalde, José & Dahm, Matthias, 2010. "Rent seeking and rent dissipation: A neutrality result," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 1-7, February.
    21. Kai Konrad & Wolfgang Leininger, 2011. "Self-enforcing norms and efficient non-cooperative collective action in the provision of public goods," Public Choice, Springer, vol. 146(3), pages 501-520, March.
    22. Davis, Douglas D & Reilly, Robert J, 1999. "Rent-Seeking with Non-identical Sharing Rules: An Equilibrium Rescued," Public Choice, Springer, vol. 100(1-2), pages 31-38, July.
    23. Nitzan, Shmuel, 1991. "Collective Rent Dissipation," Economic Journal, Royal Economic Society, vol. 101(409), pages 1522-1534, November.
    24. Baik, Kyung H & Shogren, Jason F, 1992. "Strategic Behavior in Contests: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 359-362, March.
    25. Jack Hirshleifer, 1983. "From weakest-link to best-shot: The voluntary provision of public goods," Public Choice, Springer, vol. 41(3), pages 371-386, January.
    26. Dan Kovenock & Florian Morath & Johannes Münster, 2015. "Information Sharing in Contests," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(3), pages 570-596, September.
    27. Hurley, Terrance M. & Shogren, Jason F., 1998. "Asymmetric information contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 645-665, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    alliance; incomplete information; endogenous formation; all-pay contest;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mpi:wpaper:tax-mpg-rps-2015-15. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hans Mueller). General contact details of provider: http://edirc.repec.org/data/mptaxde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.