Two-bidder all-pay auctions with interdependent valuations, including the highly competitive case

Lucas Rentschler, Theodore L. Turocy

Research output: Contribution to journalArticlepeer-review

12 Citations (Scopus)
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Abstract

We analyze symmetric, two-bidder all-pay auctions with interdependent valuations and discrete type spaces. Relaxing previous restrictions on the distribution of types and the valuation structure, we present a construction that characterizes all symmetric equilibria. We show how the search problem this construction faces can be complex. In equilibrium, randomization can take place over disjoint intervals of bids, equilibrium supports can have a rich structure, and non-monotonicity of the equilibrium may result in a positive probability of allocative inefficiency when the value of the prize is not common. Particular attention is paid to the case in which an increase in a bidder’s posterior expected value of winning the auction is likely to be accompanied by a corresponding increase for the other bidder. Such environments are “highly competitive” in the sense that the bidder’s higher valuation also signals that the other bidder has an incentive to bid aggressively.
Original languageEnglish
Pages (from-to)435-466
Number of pages30
JournalJournal of Economic Theory
Volume163
Early online date23 Feb 2016
DOIs
Publication statusPublished - May 2016

Keywords

  • contests
  • all-pay auctions
  • mixed strategies

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