When Bidding More is Not Enough: All-Pay Auctions with Handicaps

Eberhard Feess (eberhard.feess@vuw.ac.nz), Gerd Muehlheusser and Markus Walzl

No 14/2002, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: We consider a standard two-player all-pay auction with private values, where the valuation for the object is private information to each bidder. The crucial feature is that one bidder is favored by the allocation rule in the sense that he need not bid as much as the other bidder to win the auction. Analogously, the other bidder is handicapped by the rule as overbidding the rival may not be enough to win the auction. Clearly, this has important implications on equilibrium behavior. We fully characterize the equilibrium strategies for this auction format and show that there exists a unique pure strategy Bayesian Nash Equilibrium.

Keywords: All-pay auction; contest; asymmetric allocation rule; rent-seeking; asymmetric information (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (5)

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