When Bidding More is Not Enough: All-Pay Auctions with Handicaps
Bonn Econ. Discussion Paper No. 14/2002
23 Pages Posted: 21 Aug 2002
Date Written: June 2002
We consider a standard two-player all-pay auction with private values, where the valuation for the object is private information to each bidder. The crucial feature is that one bidder is favored by the allocation rule in the sense that he need not bid as much as the other bidder to win the auction. Analogously, the other bidder is handicapped by the rule as overbidding the rival may not be enough to win the auction. Clearly, this has important implications on equilibrium behavior. We fully characterize the equilibrium strategies for this auction format and show that there exists a unique pure strategy Bayesian Nash Equilibrium.
Keywords: All-pay auction, contest, asymmetric allocation rule, rent-seeking, asymmetric information
JEL Classification: D44, D88
Suggested Citation: Suggested Citation