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Lottery Versus All-Pay Auction Contests – A Revenue Dominance TheoremJörg FrankeUniversity of Dortmund - Department of Economics Christian Kanzowaffiliation not provided to SSRN Alexandra Schwartzaffiliation not provided to SSRN Wolfgang LeiningerUniversity of Dortmund - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) February 1, 2012 Ruhr Economic Paper No. 315 Abstract: We allow a contest organizer to bias a contest in a discriminatory way, that is, she can favor specific contestants through the choice of contest success functions in order to maximize total equilibrium effort (resp. revenue). The scope for revenue enhancement through biasing is analyzed and compared for the two predominant contest regimes; i.e. all-pay auctions and lottery contests. Our main result reveals that an appropriately biased all-pay auction revenue-dominates the optimally biased lottery contest for all levels of heterogeneity among contestants. Moreover, such a biased all-pay auction will never make use of the celebrated exclusion principle advanced by Baye et al. (1993).
Number of Pages in PDF File: 19 Keywords: all-pay auction, lottery contest, bias, revenue JEL Classification: C72, D72 working papers seriesDate posted: February 18, 2012Suggested CitationContact Information
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