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Simultaneous Signaling in Elimination Contests

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  • Jun Zhang

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Abstract

This paper analyzes the signaling effect of bidding in a two-round elimination contest. Before the final round, bids in the preliminary round are revealed and act as signals of the contestants' private valuations. Depending on his valuation, a contestant may have an incentive to bluff or sandbag in the preliminary round in order to gain an advantage in the final round. I analyze this signaling effect and characterize the equilibrium in this game. Compared to the benchmark model, in which private valuations are revealed automatically before the final round and thus no signaling of bids takes place, I find that strong contestants bluff and weak contestants sandbag. In a separating equilibrium, bids in the preliminary round fully reveal the contestants' private valuations. However, this signaling effect makes the equilibrium bidding strategy in the preliminary round steeper for high valuations and flatter for low valuations compared to the benchmark model.

Suggested Citation

  • Jun Zhang, 2008. "Simultaneous Signaling in Elimination Contests," Working Papers 1184, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1184
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1184.pdf
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    References listed on IDEAS

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    1. Mailath, George J., 1988. "An abstract two-period game with simultaneous signaling--Existence of separating equilibria," Journal of Economic Theory, Elsevier, vol. 46(2), pages 373-394, December.
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    Citations

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    Cited by:

    1. Osório Costa, Antonio Miguel, 2010. "Signaling in Dynamic Contests: Some Impossibility Results," Working Papers 2072/151621, Universitat Rovira i Virgili, Department of Economics.
    2. repec:zbw:rwirep:0544 is not listed on IDEAS
    3. Chiappinelli, Olga, 2014. "An elimination contest with non-sunk bids," MPRA Paper 56140, University Library of Munich, Germany.
    4. Lars P. Metzger, 2015. "Alliance Formation in Contests with Incomplete Information," Ruhr Economic Papers 0544, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    5. Metzger, Lars P., 2015. "Alliance Formation in Contests with Incomplete Information," Ruhr Economic Papers 544, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    6. Andrzej Kwiatkowski, 2010. "Non-cooperative incentives to share knowledge in competitive environments," Dundee Discussion Papers in Economics 243, Economic Studies, University of Dundee.

    More about this item

    Keywords

    all-pay auction; elimination contests; incomplete; lottery; signaling;

    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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