Tie-breaks and bid-caps in all-pay auctions |
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| Affiliation: | 1. EECS, MIT, United States;2. Department of Mathematics, MIT, United States;3. Department of Computer Science, Stanford University, United States;1. Department of Economics, University of Oxford, United Kingdom;2. Department of Quantitative Economics, Maastricht University, The Netherlands;1. Department of Economics, University of Virginia, P.O. Box 400182, Charlottesville, VA 22904-4182, USA;2. Department of Economics, American University, 4400 Massachusetts Ave NW, Washington, DC 20016-8029, USA;1. New Economic School, Russian Federation;2. CEPR, United Kingdom of Great Britain and Northern Ireland;3. Department of Economics, Florida State University, Tallahassee, FL 32306-2180, USA |
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| Abstract: | We revisit the two bidder complete information all-pay auction with bid-caps introduced by Che and Gale (1998), dropping their assumption that tie-breaking must be symmetric. Any choice of tie-breaking rule leads to a different set of Nash equilibria. Compared to the optimal bid-cap of Che and Gale we obtain that in order to maximize the sum of bids, the designer prefers to set a less restrictive bid-cap combined with a tie-breaking rule which slightly favors the weaker bidder. Moreover, the designer is better off breaking ties deterministically in favor of the weak bidder than symmetrically. |
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| Keywords: | All-pay auctions Contests Bid-caps Tie-breaking Lobbying |
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