Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Chang Koo Chi
War of attrition with affiliated values.
(), Pauli Murto
() and Juuso Välimäki
Abstract: We study the war of attrition between two players when the
players’ signals are binary and affiliated. Our model covers both the case
of common values and affiliated private values. We characterize the unique
symmetric equilibrium and demonstrate the possibility of nonmonotonic
symmetric equilibria, i.e. equilibria where the player with a lower signal
wins With positive probability. Such an outcome is inefficient in the case
of private valuations. We compare the war of attrition to other related
mechanisms, the all-pay auction and standard firstand second-price
auctions. The war of attrition dissipates the bidders’ rents more
effectively but at the same time distorts the allocation more severely than
the other mechanisms. In terms of expected revenues, the war of attrition
dominates the standard auctions, but the ranking against the all-pay
auction is ambiguous.
Keywords: War of Attrition; affiliated signals; (follow links to similar papers)
JEL-Codes: D44; D82; (follow links to similar papers)
24 pages, September 14, 2017
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