PRIZE SCARCITY AND OVERDISSIPATION IN ALL‐PAY AUCTIONS

Blake A. Allison, Jason J. Lepore and Aric P. Shafran

Economic Inquiry, 2021, vol. 59, issue 1, 361-374

Abstract: We compare bidding behavior in complete information all‐pay auction experiments that vary in the prizes and number of players. We confirm the observation from prior single‐prize experiments that there is overbidding relative to equilibrium predictions. Our primary results are that increasing the number of prizes and players proportionally does not reduce overbidding but increasing the number of prizes with a fixed number of players eliminates overbidding. We conclude that the overbidding phenomenon is related to the scarcity of the prize. We provide new theoretical results on the multi‐prize logit equilibrium, and our experimental results are qualitatively consistent with logit equilibrium predictions. (JEL D72, D91, C91, D44)

Date: 2021
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