The all-pay auction with complete information and identity-dependent externalities

Economic Theory, 2015, vol. 59, issue 1, 19 pages

Abstract: We derive a necessary and sufficient condition for the existence of equilibria with only two active players in the all-pay auction with complete information and identity-dependent externalities. This condition shows that the generic equilibrium of the standard all-pay auction is robust to the introduction of “small” identity-dependent externalities. In general, however, the presence of identity-dependent externalities invalidates well-established qualitative results concerning the set of equilibria of the first-price all-pay auction with complete information. With identity-dependent externalities, equilibria are generally not payoff equivalent, and identical players may earn different payoffs in equilibrium. These observations show that Siegel’s (Econometrica 77(1), 71–92, 2009 ) results characterizing the set of equilibrium payoffs in all-pay contests, including the all-pay auction as a special case, do not extend to environments with identity-dependent externalities. We further compare the all-pay auction with identity-dependent externalities to the first-price winner-pay auction with identity-dependent externalities. We demonstrate that the equilibrium payoffs of the all-pay auction and the “undominated strategy equilibrium” payoffs of the winner-pay auction (Funk in Int J Game Theory 25(1), 51–64, 1996 ) cannot be ranked unambiguously in the presence of identity-dependent externalities by providing examples of environments where equilibrium payoffs in the all-pay auction dominate those of the undominated strategy equilibria in the winner-pay auction and vice versa. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: All-pay auction; Identity-dependent externalities; Payoff nonequivalence; Contest; Political conflict; D44; D62; D72; C72 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (19)

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Related works:
Working Paper: The All-Pay Auction with Complete Information and Identity-Dependent Externalities (2013)
Working Paper: The all-pay auction with complete information and identity-dependent externalities (2013)
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DOI: 10.1007/s00199-014-0848-5

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