Service On the “Exclusion Principle” in all-pay auctions with incomplete information

Nicola Dimitri
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Nicola Dimitri: Faculty of Economics University of Siena, Siena-Italy. Visiting Professor IMT Lucca, Lucca-Italy. Research Associate Maastricht School of Management, Maastricht-NL

No 2012/50, Working Papers from Maastricht School of Management

Abstract: A main issue in auction and contest design is how to attract the appropriate pool of potential bidders to enter and compete aggressively. In all-pay auctions with complete information (Baye at al, 1993 AER) formulated the so called “Exclusion Principle” showing that when the auctioneer maximizes the sum of the offers submitted by bidders, then it may be optimal for him to exclude the participants with the highest evaluations. In the paper we investigate the validity of the principle in all-pay auctions with incomplete information and, somewhat surprisingly, show that in the simplest version of such auctions findings are reversed with respect to the case of complete information. More specifically, if the auctioneer maximizes the total expected bid then he would not want to exclude participants which he may instead want to do when maximizing the highest expected price.

Pages: 12 pages
Date: 2012-11
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http://web2.msm.nl/RePEc/msm/wpaper/MSM-WP2012-50.pdf First version, 2012 (application/pdf)

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