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Choosing Fair Lotteries to Defeat the Competition

  • Wagman, Liad
  • Conitzer, Vincent

We study the following game: each agent i chooses a lottery over nonnegative numbers whose expectation is equal to his budget b_i. The agent with the highest realized outcome wins and agents only care about winning). This game is motivated by various real-world settings where agents each choose a gamble and the primary goal is to come out ahead. Such settings include patent races, stock market competitions, and R&D tournaments. We show that there is a unique symmetric equilibrium when budgets are equal. We proceed to study and solve extensions, including settings where agents must obtain a minimum outcome to win; where agents choose their budgets (at a cost); and where budgets are private information.

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File URL: http://mpra.ub.uni-muenchen.de/10375/1/MPRA_paper_10375.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10375.

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Date of creation: 14 Aug 2008
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Handle: RePEc:pra:mprapa:10375
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  3. Kovenock, D. & de Vries, C.G., 1995. "The All-Pay Auction with Complete Information," UFAE and IAE Working Papers 311.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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  6. Richard Gilbert and Carl Shapiro., 1989. "Optimal Patent Length and Breadth," Economics Working Papers 89-102, University of California at Berkeley.
  7. Nancy Gallini and Suzanne Scotchmer., 2001. "Intellectual Property: When Is It the Best Incentive System?," Economics Working Papers E01-303, University of California at Berkeley.
  8. Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, vol. 44(2), pages 217-226, August.
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  10. Uwe Dulleck & Paul Frijters & Konrad Podczeck, 2006. "All-pay auctions with budget constraints and fair insurance," Economics working papers 2006-13, Department of Economics, Johannes Kepler University Linz, Austria.
  11. Richard J. Rosen, 1991. "Research and Development with Asymmetric Firm Sizes," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 411-429, Autumn.
  12. van Dijk, Theon, 1996. "Patent Height and Competition in Product Improvements," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 151-67, June.
  13. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
  14. Cabral, Luis, 1994. "Bias in market R&D portfolios," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 533-547, December.
  15. Kyle Bagwell & Robert W. Staiger, 1990. "Risky R&D in Oligopolistic Product Markets," Discussion Papers 872, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  17. Ron Siegel, 2009. "All-Pay Contests," Econometrica, Econometric Society, vol. 77(1), pages 71-92, 01.
  18. Kenneth L. Judd, 2003. "Closed-loop equilibrium in a multi-stage innovation race," Economic Theory, Springer, vol. 21(2), pages 673-695, 03.
  19. Luis Cabral, 2000. "Increasing Dominance With No Efficiency Effect," Working Papers 00-06, New York University, Leonard N. Stern School of Business, Department of Economics.
  20. Luís M. B. Cabral, 2003. "R&D Competition when firms Choose Variance," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(1), pages 139-150, 03.
  21. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
  22. Tor Klette & David de Meza, 1986. "Is the Market Biased Against Risky R&D?," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 133-139, Spring.
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