Information Alliances in Contests with Budget Limits
WZB Markets and Politics Working Paper No. SP II 2010-21
25 Pages Posted: 19 Aug 2011
Date Written: December 1, 2010
We study the role of information exchange through alliances in a framework with contestants who have binding budget limits and know their own budget limit but are incompletely informed about other contestants’ budget limits. First, we solve for the Bayesian Nash equilibrium. Then we consider the role of information exchange through alliances. Contestants learn the budget limits of all players who are within the same alliance, and then decide independently about their own contest efforts. This type of alliance formation is beneficial for alliance members and neutral for players who do not belong to the alliance. Also, a merger between alliances is beneficial for their members. Further, we consider merger between alliances and discuss the set of stable combinations of alliances.
Keywords: contest, budget limits, incomplete information, alliances, information
JEL Classification: D72, D74
Suggested Citation: Suggested Citation