Repeated contests with asymmetric information

Wiederholte Wettkämpfe mit asymmetrischer Information

Johannes Münster

Discussion Papers, Research Unit: Market Processes and Governance from WZB Berlin Social Science Center

Abstract: The same contestants often meet repeatedly in contests. Behavior in a contest potentially provides information with regard to one's type and can therefore influence the behavior of the opponents in later contests. This paper shows that if effort is observable, this can induce a ratchet effect in contests: high ability contestants sometimes put in little effort in an early round in order to make the opponents believe that they are of little ability. The effect reduces overall effort and increases equilibrium utility of the contestants when compared with two unrelated one-shot contests. It does, however, also introduce an allocative inefficiency since sometimes a contestant with a low valuation wins. The model assumes an imperfectly discriminating contest. In extension I show that, qualitatively, results are similar in a perfectly discriminating contest (all pay auction).

JEL-codes: C72 D72 D74 D82 M52 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbmpg:spii200808

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