Lottery Versus All-Pay Auction Contests – A Revenue Dominance Theorem

19 Pages Posted: 18 Feb 2012

See all articles by Jörg Franke

Jörg Franke

University of Dortmund - Department of Economics

Christian Kanzow

affiliation not provided to SSRN

Alexandra Schwartz

affiliation not provided to SSRN

Wolfgang Leininger

University of Dortmund - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: February 1, 2012

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).

Keywords: all-pay auction, lottery contest, bias, revenue

JEL Classification: C72, D72

Suggested Citation

Franke, Jörg and Kanzow, Christian and Schwartz, Alexandra and Leininger, Wolfgang, Lottery Versus All-Pay Auction Contests – A Revenue Dominance Theorem (February 1, 2012). Ruhr Economic Paper No. 315, Available at SSRN: https://ssrn.com/abstract=2007044 or http://dx.doi.org/10.2139/ssrn.2007044

Jörg Franke (Contact Author)

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany

Christian Kanzow

affiliation not provided to SSRN ( email )

Alexandra Schwartz

affiliation not provided to SSRN ( email )

Wolfgang Leininger

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755 3297 (Phone)
+49 231 755 3027 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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