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Repeated contests with asymmetric information
[Wiederholte Wettkämpfe mit asymmetrischer Information]

  • Münster, Johannes
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    The same contestants often meet repeatedly in contests. Behavior in a contest potentially provides information with regard to one's type and can therefore influence the behavior of the opponents in later contests. This paper shows that if effort is observable, this can induce a ratchet effect in contests: high ability contestants sometimes put in little effort in an early round in order to make the opponents believe that they are of little ability. The effect reduces overall effort and increases equilibrium utility of the contestants when compared with two unrelated one-shot contests. It does, however, also introduce an allocative inefficiency since sometimes a contestant with a low valuation wins. The model assumes an imperfectly discriminating contest. In extension I show that, qualitatively, results are similar in a perfectly discriminating contest (all pay auction).

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    Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number SP II 2008-08.

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    Date of creation: 2008
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    Handle: RePEc:zbw:wzbmpg:spii200808
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    1. Baye, M.R. & Kovenock, D. & De Varies, C.G., 1990. "The All-Pay Auction With Complete Information," Papers 9051, Tilburg - Center for Economic Research.
    2. Stergios Skaperdas, 2003. "Restraining the Genuine Homo Economicus: Why the Economy Cannot be Divorced from its Governance," CESifo Working Paper Series 901, CESifo Group Munich.
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    5. Meyer, Margaret A, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 15-41, January.
    6. Slantchev, Branislav L., 2010. "Feigning Weakness," International Organization, Cambridge University Press, vol. 64(03), pages 357-388, July.
    7. Gradstein, Mark & Konrad, Kai A, 1999. "Orchestrating Rent Seeking Contests," Economic Journal, Royal Economic Society, vol. 109(458), pages 536-45, October.
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    14. Hurley, Terrance M. & Shogren, Jason F., 1998. "Asymmetric information contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 645-665, November.
    15. Matthew O. Jackson & Leo K. Simon & Jeroen M. Swinkels & William R. Zame, 2002. "Communication and Equilibrium in Discontinuous Games of Incomplete Information," Econometrica, Econometric Society, vol. 70(5), pages 1711-1740, September.
    16. Alexander Matros, 2007. "Contests with a Stochastic Number of Players," Working Papers 323, University of Pittsburgh, Department of Economics, revised Sep 2008.
    17. Thomas D. Jeitschko & Elmar Wolfstetter, 2002. "Scale Economies and the Dynamics of Recurring Auctions," Economic Inquiry, Western Economic Association International, vol. 40(3), pages 403-414, July.
    18. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
    19. Johannes H�rner & Nicolas Sahuguet, 2007. "Costly Signalling in Auctions -super-1," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 173-206.
    20. Krahmer, Daniel, 2007. "Equilibrium learning in simple contests," Games and Economic Behavior, Elsevier, vol. 59(1), pages 105-131, April.
    21. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
    22. Hurley, Terrance M. & Shogren, Jason F., 1998. "Effort levels in a Cournot Nash contest with asymmetric information," Journal of Public Economics, Elsevier, vol. 69(2), pages 195-210, June.
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    25. repec:bla:restud:v:74:y:2007:i:1:p:173-206 is not listed on IDEAS
    26. Johannes Münster, 2006. "Contests with an unknown number of contestants," Public Choice, Springer, vol. 129(3), pages 353-368, December.
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