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Contests with small noise and the robustness of the all-pay auction

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  • Christian Ewerhart

Abstract

This paper considers all-pay contests in which the relationship between bids and allocations reflects a small amount of noise. Prior work had focused on one particular equilibrium. However, there may be other equilibria. To address this issue, we introduce a new and intuitive measure for the proximity to the all-pay auction. This allows, in particular, to provide simple conditions under which actually any equilibrium of the contest is both payoff equivalent and revenue equivalent to the unique equilibrium of the corresponding all-pay auction. The results are shown to have powerful implications for monopoly licensing, political lobbying, electoral competition, optimally biased contests, the empirical analysis of rent-seeking, and dynamic contests.

Suggested Citation

  • Christian Ewerhart, 2015. "Contests with small noise and the robustness of the all-pay auction," ECON - Working Papers 186, Department of Economics - University of Zurich, revised Jun 2017.
  • Handle: RePEc:zur:econwp:186
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    References listed on IDEAS

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    1. repec:eee:ecolet:v:157:y:2017:i:c:p:167-170 is not listed on IDEAS
    2. Ewerhart, Christian, 2017. "Revenue ranking of optimally biased contests: The case of two players," Economics Letters, Elsevier, vol. 157(C), pages 167-170.
    3. repec:eee:ecolet:v:159:y:2017:i:c:p:61-64 is not listed on IDEAS

    More about this item

    Keywords

    Contests; increasing returns; mixed-strategy Nash equilibrium; robustness of the all-pay auction; payoff equivalence; revenue equivalence;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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