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Continuois Time Contests

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  • Seel, Christian
  • Strack, Philipp

Abstract

This paper introduces a contest model in which each player decides when to stop a privately observed Brownian motion with drift and incurs costs depending on his stopping time. The player who stops his process at the highest value wins a prize. Applications of the model include procurement contests and competitions for grants. We prove existence and uniqueness of the Nash equilibrium outcome, even if players have to choose bounded stopping times. We derive the equilibrium distribution in closed form. If the noise vanishes, the equilibrium outcome converges to - and thus selects - the symmetric equilibrium outcome of an all-pay auction. For two players and constant costs, each player’s profits increase if costs for both players increase, variance increases, or drift decreases. Intuitively, patience becomes a more important factor for contest success, which reduces informational rents.

Suggested Citation

  • Seel, Christian & Strack, Philipp, 2012. "Continuois Time Contests," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 376, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:376
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    File URL: https://epub.ub.uni-muenchen.de/13178/1/376.pdf
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    References listed on IDEAS

    as
    1. Axel Anderson & Luís M. B. Cabral, 2007. "Go for broke or play it safe? Dynamic competition with choice of variance," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 593-609, September.
    2. 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.
    3. Park, Andreas & Smith, Lones, 2008. "Caller Number Five and related timing games," Theoretical Economics, Econometric Society, vol. 3(2), June.
    4. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-890, September.
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    Cited by:

    1. Segev, Ella & Sela, Aner, 2014. "Multi-stage sequential all-pay auctions," European Economic Review, Elsevier, vol. 70(C), pages 371-382.
    2. Ryota Iijima & Akitada Kasahara, 2016. "Gradual Adjustment and Equilibrium Uniqueness under Noisy Monitoring," ISER Discussion Paper 0965, Institute of Social and Economic Research, Osaka University.

    More about this item

    Keywords

    Contests; all-pay contests; silent timing games;

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