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

Games and Economic Behavior, Volume 85, May 2014, Pages 84–108

PIER Working Paper No. 14-001

58 Pages Posted: 16 Jan 2014 Last revised: 20 May 2014

See all articles by Maciej H. Kotowski

Maciej H. Kotowski

Harvard University - Harvard Kennedy School (HKS)

Fei Li

University of North Carolina (UNC) at Chapel Hill

Date Written: January 10, 2014

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. 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 endowments. An example shows that with both interdependent valuations and private budget constraints, a revenue ranking between the two auction formats is generally not possible. Equilibria with discontinuous bidding strategies are discussed.

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', Third Version (January 10, 2014). Games and Economic Behavior, Volume 85, May 2014, Pages 84–108 ; PIER Working Paper No. 14-001. Available at SSRN: https://ssrn.com/abstract=2379454 or http://dx.doi.org/10.2139/ssrn.2379454

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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