On the Continuous Equilibria of Affiliated-Value, All-Pay Auctions with Private Budget Constraints

44 Pages Posted: 7 May 2012  

Maciej H. Kotowski

Harvard University - Harvard Kennedy School (HKS)

Fei Li

University of North Carolina (UNC) at Chapel Hill

Date Written: April 23, 2012

Abstract

We consider all-pay auctions in the presence of interdependent, affiliated valuations and private budget constraints. For the sealed-bid, all-pay auction we characterize a symmetric equilibrium in continuous strategies for the case of N bidders and we investigate its properties. Budget constraints encourage more aggressive bidding among participants with large endowments and intermediate valuations. We extend our results to the war of attrition where we show that budget constraints lead to a uniform amplification of equilibrium bids among bidders with sufficient endownments. An example shows that with both interdependent valuations and private budget constraints, a revenue ranking between the two mechanisms is generally not possible.

Keywords: All-Pay Auction, War of Attrition, Budget Constraints, Common Values, Private Values, Affiliation, Contests

JEL Classification: D44

Suggested Citation

Kotowski, Maciej H. and Li, Fei, On the Continuous Equilibria of Affiliated-Value, All-Pay Auctions with Private Budget Constraints (April 23, 2012). PIER Working Paper No. 12-019. Available at SSRN: https://ssrn.com/abstract=2053311 or http://dx.doi.org/10.2139/ssrn.2053311

Maciej H. Kotowski

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Fei Li (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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