Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Chang Koo Chi
All-pay auctions with affiliated values.
(), Pauli Murto
() and Juuso Välimäki
Abstract: This paper analyzes all-pay auctions where the bidders
have affiliated values for the object for sale and where the signals take
binary values. Since signals are correlated, high signals indicate a high
degree of competition in the auction and since even losing bidders must pay
their bid, non-monotonic equilibria arise. We show that the game has a
unique symmetric equilibrium, and that whenever the equilibrium is
non-monotonic the contestants earn no rents. All-pay auctions result in low
expected rents to the bidders, but also induce inefficient allocations in
models with affiliated private values. With two bidders, the effect on rent
extraction dominates, and all-pay auction outperforms standard auctions in
terms of expected revenue. With many bidders, this revenue ranking is
reversed for some parameter values and the inefficient allocations persist
even in large auctions.
Keywords: All-pay auctions; common values; affiliated signals; (follow links to similar papers)
JEL-Codes: D44; D82; (follow links to similar papers)
45 pages, June 17, 2017
This is DP No 13/2017
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