Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions

Aniol Llorente-Saguer, Roman M. Sheremeta and Nora Szech

European Economic Review, 2023, vol. 154, issue C

Abstract: A well-known theoretical result in the contest literature is that greater heterogeneity decreases investments of contestants because of the “discouragement effect.” Levelling the playing field by favouring weaker contestants through strict bid-caps and favourable tie-breaking rules can reduce discouragement and increase the designer's revenue. We test these predictions in a laboratory experiment. Our data confirm that placing bid-caps and using favourable tie-breaking rules significantly diminishes discouragement of weaker contestants. However, its impact on revenues is muted by the fact that the encouragement of weaker contestants is offset by stronger contestants competing less aggressively, even when not predicted by theory. We discuss deviations from the Nash predictions in light of different behavioural approaches.

Keywords: All-pay auction; Rent‑seeking; Bid-caps; Tie-breaks; Contest design (search for similar items in EconPapers)
JEL-codes: C72 C91 D72 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Designing Contests Between Heterogeneous Contestants: An Experimental Studie of Tie-Breaks and Bid-Caps in All-Pay Auctions (2020)
Working Paper: Designing Contests Between Heterogeneous Contestants: An Experimental Study of Tie-Breaks and Bid-Caps in All-Pay Auctions (2016)
Working Paper: Designing Contests Between Heterogeneous Contestants: An Experimental Study of Tie-Breaks and Bid-Caps in All-Pay Auctions (2016)
Working Paper: Designing Contests Between Heterogeneous Contestants: An Experimental Study of Tie-Breaks and Bid-Caps in All-Pay Auctions (2016)
Working Paper: Designing Contests Between Heterogeneous Contestants: An Experimental Study of Tie-Breaks and Bid-Caps in All-Pay Auctions (2016)
Working Paper: Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions (2016)
Working Paper: Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:154:y:2023:i:c:s0014292122002070

DOI: 10.1016/j.euroecorev.2022.104327

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