Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 2/2018: Beating the Matthew Effect: Head Starts and Catching Up in a Dynamic All-Pay Auction*

Derek J. Clark () and Tore Nilssen ()
Additional contact information
Derek J. Clark: School of Business and Economics, University of Tromsø, Postal: UiT The Arctic University of Norway, School of Business and Economics, Postboks 6050 Langnes, 9037 Tromsø, Norway
Tore Nilssen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway

Abstract: We consider an effort-maximizing principal distributing a prize fund over two consecutive all-pay auctions. The two contestants are doubly heterogeneous: one of them has a head start in the fi rst contest; and winning contest one gives an advantage in contest two that varies between players. We show that, with a large head start, the principal chooses a zero prize in contest two, i.e., runs a single contest. Otherwise, the laggard winning contest one may overturn the leaders head start, possibly inciting expected efforts equal to the prize value, avoiding the laggard giving up, and this way mitigating the Matthew effect.

Keywords: Contest; All-pay auction; Head start; Catching up; Mathhew effect

JEL-codes: D72; D74

26 pages, February 27, 2018

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