Optimal Favoritism in All-Pay Auctions and Lottery Contests

33 Pages Posted: 6 Feb 2017

See all articles by Jörg Franke

Jörg Franke

University of Dortmund - Department of Economics

Wolfgang Leininger

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

Cédric Wasser

University of Basel - Faculty of Business and Economics

Date Written: December 2016

Abstract

We analyze the revenue-enhancing potential of favoring specific contestants in complete information all-pay auctions and lottery contests with several heterogeneous contestants. Two instruments of favoritism are considered: head starts that are added to the bids of specific contestants and multiplicative biases that give idiosyncratic weights to the bids. In the all-pay auction, head starts are more effective than biases while optimally combining both instruments even yields first-best revenue. In the lottery contest, head starts are less effective than biases and combining both instruments cannot further increase revenue. As all-pay auctions revenue-dominate lottery contests under optimal biases, we thus obtain an unambiguous revenue-ranking of all six combinations of contest formats and instruments.

Keywords: all-pay auction, lottery contest, favoritism, head start, revenue dominance

JEL Classification: C720, D720

Suggested Citation

Franke, Jörg and Leininger, Wolfgang and Wasser, Cédric, Optimal Favoritism in All-Pay Auctions and Lottery Contests (December 2016). CESifo Working Paper Series No. 6274, Available at SSRN: https://ssrn.com/abstract=2912082

Jörg Franke

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany

Wolfgang Leininger (Contact Author)

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

Cédric Wasser

University of Basel - Faculty of Business and Economics ( email )

Peter-Merian-Weg 6
Basel, 4002
Switzerland

HOME PAGE: http://www.cedricwasser.net

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