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When Bidding More is Not Enough: All-Pay Auctions with Handicaps

Bonn Econ. Discussion Paper No. 14/2002

23 Pages Posted: 21 Aug 2002  

Markus Walzl

RWTH Aachen University - Chair for Economics (Microeconomics)

Eberhard Feess

Frankfurt School of Finance & Management gemeinnützige GmbH

Gerd Muehlheusser

University of Hamburg; IZA Institute of Labor Economics

Date Written: June 2002

Abstract

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

Walzl, Markus and Feess, Eberhard and Muehlheusser, Gerd, When Bidding More is Not Enough: All-Pay Auctions with Handicaps (June 2002). Bonn Econ. Discussion Paper No. 14/2002. Available at SSRN: https://ssrn.com/abstract=319241 or http://dx.doi.org/10.2139/ssrn.319241

Markus Walzl (Contact Author)

RWTH Aachen University - Chair for Economics (Microeconomics) ( email )

Aachen, 52056
Germany
0049 241 809 6157 (Phone)
0049 241 809 2345 (Fax)

Eberhard Feess

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

Gerd Muehlheusser

University of Hamburg ( email )

Von Melle Park 5
Hamburg, 20146
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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