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All-Pay Auctions with Negative Prize Externalities: Theory and Experimental Evidence


Sacco, Dario; Schmutzler, Armin (2008). All-Pay Auctions with Negative Prize Externalities: Theory and Experimental Evidence. Working paper series / Socioeconomic Institute No. 806, University of Zurich.

Abstract

The paper characterizes the mixed-strategy equilibria in all-pay auctions with endogenous prizes that depend positively on own e?ort and negatively on the e?ort of competitors. Such auctions arise naturally in the context of investment games, lobbying games, and promotion tournaments. We also provide an experimental analysis of a special case which captures the strategic situation of a two-stage game with investment preceding homogenous Bertrand competition. We obtain overinvestment both relative to the mixed-strategy equilibrium and the social optimum.

Abstract

The paper characterizes the mixed-strategy equilibria in all-pay auctions with endogenous prizes that depend positively on own e?ort and negatively on the e?ort of competitors. Such auctions arise naturally in the context of investment games, lobbying games, and promotion tournaments. We also provide an experimental analysis of a special case which captures the strategic situation of a two-stage game with investment preceding homogenous Bertrand competition. We obtain overinvestment both relative to the mixed-strategy equilibrium and the social optimum.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
Dewey Decimal Classification:330 Economics
JEL Classification:C92, D44, L13, O31
Language:English
Date:May 2008
Deposited On:29 Nov 2011 22:47
Last Modified:12 Aug 2017 13:08
Series Name:Working paper series / Socioeconomic Institute
Official URL:http://www.econ.uzh.ch/wp.html

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