Silent Interests and All-pay Auctions
Kai A. Konrad
Max Planck Institute for Tax Law and Public Finance; Social Science Research Center Berlin (WZB); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)
CESifo Working Paper Series No. 1473; WZB, Markets and Political Economy Working Paper No. SP II 2005-10
If firms compete in all-pay auctions with complete information, silent shareholdings introduce asymmetric externalities into the all-pay auction framework. If the strongest firm owns a large share in the second strongest firm, this may make the strongest firm abstain from bidding. As a consequence, equilibrium profits of both firms may increase, but the prize may be allocated less efficiently. The reverse ownership structure is also likely to increase the profits of the firms involved in the ownership relationship but without these negative efficiency effects.
Number of Pages in PDF File: 30
Keywords: All-pay auctions, externalities, contests, silent minority shareholdings, ownership structure
JEL Classification: D44, L11, L41working papers series
Date posted: May 18, 2005
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