All-Pay Auctions with Negative Prize Externalities: Theory and Experimental Evidence
32 Pages Posted: 28 Oct 2008
Date Written: May 1, 2008
Abstract: The paper characterizes the mixed-strategy equilibria in all-pay auctions with endogenous prizes that depend positively on own effort and negatively on the effort 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.
Keywords: Keywords: All-pay auctions, oligopoly, investment, experiment, overbidding
JEL Classification: JEL Classification: C92, D44, L13, O31
Suggested Citation: Suggested Citation