Competitive effect of cross-shareholdings in all-pay auctions with complete information

Qiang Fu and Jingfeng Lu

International Journal of Industrial Organization, 2013, vol. 31, issue 3, 267-277

Abstract: This paper investigates the competitive effect of cross-shareholdings in winner-take-all all-pay auctions with two asymmetric bidders. We show that cross-shareholdings may paradoxically create a “pro-competitive” effect and elicit more effort than a standard contest without cross-ownership. This observation runs in contrast to the anti-competitive effect that cross-shareholdings usually create in standard oligopolistic settings (such as Cournot or Bertrand competitions). Both bidding costs and the sizes of cross-shares affect the resultant total effort non-monotonically. Neither a cross-share nor a higher bidding cost necessarily decreases effort supply. A complete account of equilibrium bidding behaviors is provided and the necessary and sufficient conditions under which cross-shareholdings lead to higher or lower levels of overall effort are identified. However, the pro-competitive effect comes at a loss of efficiency.

Keywords: All-pay auction; Cross-shareholding; Effort supply; Asymmetric bidders; Virtual bidding costs (search for similar items in EconPapers)
JEL-codes: C7 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:3:p:267-277

DOI: 10.1016/j.ijindorg.2012.02.004

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