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Designing Contests between Heterogeneous Contestants: An Experimental Study of Tie-Breaks and Bid-Caps in All-Pay Auctions

32 Pages Posted: 20 Apr 2016 Last revised: 10 May 2016

Aniol Llorente-Saguer

Queen Mary University of London

Roman M. Sheremeta

Case Western Reserve University

Nora Szech

Karlsruhe Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: May 8, 2016

Abstract

A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the “discouragement effect.” Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer’s revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the discouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.

Keywords: all-pay auction, rent-seeking, bid-caps, tie-breaks, contest design

JEL Classification: C72, C91, D72

Suggested Citation

Llorente-Saguer, Aniol and Sheremeta, Roman M. and Szech, Nora, Designing Contests between Heterogeneous Contestants: An Experimental Study of Tie-Breaks and Bid-Caps in All-Pay Auctions (May 8, 2016). Available at SSRN: https://ssrn.com/abstract=2766732

Aniol Llorente-Saguer

Queen Mary University of London ( email )

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom

HOME PAGE: http://https://sites.google.com/site/aniollls/

Roman M. Sheremeta (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

Nora Szech

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

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