Alliance Formation in Contests with Incomplete Information

41 Pages Posted: 1 Apr 2015

Date Written: February 23, 2015

Abstract

This paper studies a contest in which players with unobservable types may form an alliance in a pre-stage of the game to join their forces and compete for a prize. We characterize the pure strategy equilibria of this game of incomplete information. We show that if the formation of an alliance is voluntary, players do not reveal private information in the process of alliance formation in any equilibrium. In this case there exists a pooling equilibrium without alliances with a unique effort choice in the contest and there exist equilibria in which all types prefer to form an alliance. If the formation of an alliance can be enforced by one player with positive probability there exists an equilibrium in which only the low types prefer to form an alliance.

Keywords: Alliance formation; contest; incomplete information; free-riding; signalling

JEL Classification: C72, D72, D74, D82

Suggested Citation

Metzger, Lars, Alliance Formation in Contests with Incomplete Information (February 23, 2015). Ruhr Economic Paper No. 544, Available at SSRN: https://ssrn.com/abstract=2583767 or http://dx.doi.org/10.2139/ssrn.2583767

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