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Bid Caps and Disclosure Policies

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  • Bo Chen
  • Marco Serena

Abstract

We examine the effect of publicly disclosing or concealing bidders’ types in an all-pay auction with a common bid cap. We call partial (full) disclosure policy the setup where the contest designer’s disclosure policy is (not) contingent on type realization. Despite a bid cap possibly increasing the expected expenditures under a partial disclosure policy and the expected expenditures of low-types under a policy of full disclosure, the bid cap unambiguously decreases the expected total expenditures, regardless of the disclosure policy. For any given bid cap and allowing for full and partial disclosure policies, we ï¬ nd that expenditures are minimized with the policy in which a designer discloses bidders’ types only if both players have a low valuation of the prize. The expenditures are maximized with the full concealment policy or with the policy in which a designer discloses the information only if both players have a high valuation. All in all, when the designer can choose both the disclosure policy and the bid cap, revenue is maximized employing full concealment with no bid cap.

Suggested Citation

  • Bo Chen & Marco Serena, 2020. "Bid Caps and Disclosure Policies," Working Papers tax-mpg-rps-2020-08, Max Planck Institute for Tax Law and Public Finance.
  • Handle: RePEc:mpi:wpaper:tax-mpg-rps-2020-08
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    References listed on IDEAS

    as
    1. Qiang Fu & Jingfeng Lu & Jun Zhang, 2016. "Disclosure policy in Tullock contests with asymmetric stochastic entry," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 52-75, February.
    2. Feng, Xin & Lu, Jingfeng, 2016. "The optimal disclosure policy in contests with stochastic entry: A Bayesian persuasion perspective," Economics Letters, Elsevier, vol. 147(C), pages 103-107.
    3. Nicolas Sahuguet, 2006. "Caps in asymmetric all-pay auctions with incomplete information," Economics Bulletin, AccessEcon, vol. 3(9), pages 1-8.
    4. Chen, Bo & Jiang, Xiandeng & Knyazev, Dmitriy, 2017. "On disclosure policies in all-pay auctions with stochastic entry," Journal of Mathematical Economics, Elsevier, vol. 70(C), pages 66-73.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    contest; all-pay auction; stochastic abilities; bid cap; disclosure;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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