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Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions

Listed author(s):
  • Llorente-Saguer, Aniol
  • Sheremeta, Roman M.
  • Szech, Nora

A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the "discouragement effect." Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer's revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the discouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.

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Paper provided by Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering in its series Working Paper Series in Economics with number 88.

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Date of creation: 2016
Handle: RePEc:zbw:kitwps:88
Contact details of provider: Web page: http://www.wiwi.kit.edu/

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