Effect of reimbursement on all-pay auction
Economics Letters, 2018, vol. 172, issue C, 28-30
We study all-pay auctions with winners’ reimbursement. This study is conducted under incomplete information with non-linear effort functions. We show that when the cost of effort is concave, the expected revenue in all-pay auctions with reimbursement is higher than the expected revenue in all-pay auctions without reimbursement. However, when the cost of effort is convex, the expected revenue in all-pay auctions without reimbursement is higher. The results of this paper supply a justification to apply reimbursement in contests as part of a mechanism to increase expected revenue. This is especially true in contests where applying new technologies results in decreasing the marginal costs of efforts.
Keywords: All-pay auctions; Reimbursement (search for similar items in EconPapers)
JEL-codes: C72 D44 (search for similar items in EconPapers)
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