Optimal Favoritism in All-Pay Auctions and Lottery Contests
Jörg Franke (),
Wolfgang Leininger and
Cédric Wasser ()
No 6274, CESifo Working Paper Series from CESifo Group Munich
We analyze the revenue-enhancing potential of favoring specific contestants in complete information all-pay auctions and lottery contests with several heterogeneous contestants. Two instruments of favoritism are considered: Head starts that are added to the bids of specific contestants and multiplicative biases that give idiosyncratic weights to the bids. In the all-pay auction, head starts are more effective than biases while optimally combining both instruments even yields first-best revenue. In the lottery contest, head starts are less effective than biases and combining both instruments cannot further increase revenue. As all-pay auctions revenue-dominate lottery contests under optimal biases, we thus obtain an unambiguous revenue-ranking of all six combinations of contest formats and instruments.
Keywords: all-pay auction; lottery contest; favoritism; head start; revenue dominance (search for similar items in EconPapers)
JEL-codes: C72 D72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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Journal Article: Optimal favoritism in all-pay auctions and lottery contests (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6274
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