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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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    22. 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.
    23. 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.
    24. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
    25. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
    26. Roger Myerson & Karl Wärneryd, 2006. "Population uncertainty in contests," Economic Theory, Springer, vol. 27(2), pages 469-474, January.
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