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Two Bidder All-Pay Auctions with Interdependent Valuations, including the Highly Competitive Case

Theodore Turocy () and Lucas Rentschler ()

No 63, University of East Anglia Applied and Financial Economics Working Paper Series from School of Economics, University of East Anglia, Norwich, UK.

Abstract: We analyze symmetric, two-bidder all-pay auctions with interdependent valuations and discrete type spaces. Relaxing previous restrictions on the distribution of types and the valuation structure, we present a construction that computes all symmetric equilibria. We show how the search problem this construction faces can be complex. In equilibrium, randomization can take place over disjoint ranges of bids, equilibrium supports can have a rich structure, and non-monotonicity of the equilibrium may result in a positive probability of allocative inefficiency when the value of the prize is not common. Particular attention is paid to the case in which an increase in a bidder's posterior expected value for winning the auction is likely to be accompanied by a corresponding increase for the other bidder. Such environments are `highly competitive' in the sense that the bidder's higher valuation also signals that the other bidder has an incentive to bid aggressively.

Date: 2014-06
New Economics Papers: this item is included in nep-cta, nep-gth and nep-mic
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Journal Article: Two-bidder all-pay auctions with interdependent valuations, including the highly competitive case (2016) Downloads
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