An Analysis of the Two-Bidder All-Pay Auction with Common Values

35 Pages Posted: 6 Sep 2018

See all articles by Chang-Koo Chi

Chang-Koo Chi

Norwegian School of Economics (NHH) - Department of Economics

Date Written: August 28, 2018

Abstract

This paper studies a symmetric two-bidder all-pay auction where the bidders compete for a prize whose unknown common value is either high or low. The bidders’ private signals (or types) are discrete and affiliated through the value. Even with Affiliated signals, monotonicity of equilibria can fail in the sense that the bidder With a higher signal does not always win the auction. I show that when monotonicity fails, there exist multiple symmetric equilibria but the bidder’s type-dependent payoff is invariant across the equilibria. The paper provides a closed-form formula for the equilibrium payoffs and a condition for rent dissipation.

Keywords: All-pay auctions, common values, correlated signals, non-monotone equilibria

JEL Classification: D44, D72, D88

Suggested Citation

Chi, Chang-Koo, An Analysis of the Two-Bidder All-Pay Auction with Common Values (August 28, 2018). NHH Dept. of Economics Discussion Paper No. 17/2018. Available at SSRN: https://ssrn.com/abstract=3243328 or http://dx.doi.org/10.2139/ssrn.3243328

Chang-Koo Chi (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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