All-Pay Auctions with Negative Prize Externalities: Theory and Experimental Evidence

Sacco, Dario; Schmutzler, Armin

doi:10.2139/ssrn.1291085

Cited by 11 publications

(14 citation statements)

References 12 publications

(12 reference statements)

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“…Recall that by contrast, all-pay auctions of complete information with exogenous prizes only have mixed strategy equilibria. Sacco and Schmutzler (2008) study an all-pay auction where endogenous prizes depend positively on own effort and negatively on the competitors' effort. They find evidence that subjects often coordinate on asymmetric pure strategy equilibria, where one player exerts all the effort while others exert no effort at all.…”

Section: Endogenous Prizes Spillovers and Externalitiesmentioning

confidence: 99%

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

2012

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Many economic, political and social environments can be described as contests in which agents exert costly efforts while competing over the distribution of a scarce resource. These environments have been studied using Tullock contests, all-pay auctions and rank-order tournaments. This survey provides a comprehensive review of experimental research on these three canonical contests. First, we review studies investigating the basic structure of contests, including the number of players and prizes, spillovers and externalities, heterogeneity, risk and incomplete information. Second, we discuss dynamic contests and multi-battle contests. Then we review studies examining sabotage, feedback, bias, collusion, alliances, group contests and gender, as well as field experiments. Finally, we discuss applications of contests and suggest directions for future research. IntroductionMany economic, political and social environments can be described as contests in which competing agents have the opportunity to expend scarce resources -such as effort, money, time, or troops -in order to affect the probabilities of winning prizes. Examples range from the competition for mates, college admission, patents, or promotions within firms, to the process of litigation or lobbying politicians, to elections, sports competitions, and violent global conflicts (Tullock, 1967;Krueger, 1974). As is obvious from this list, these environments have attracted considerable attention in applications in a wide range of fields, both in-and out-side of economics. They have also been studied extensively by economic theorists in what has become known as the field of contest theory (Konrad, 2009). Although this field continues to attract many young theorists, it has its roots in three models developed in the mid-seventies to early eighties: the Tullock (1980) model of rent-seeking, the Lazear and Rosen (1981) rank-order tournament model, and the all-pay auction (Hirshleifer and Riley, 1978;Nalebuff and Stiglitz, 1983;Dasgupta, 1986;Hillman and Riley, 1989). Despite the fact that the three models historically developed somewhat independently, they represent special cases of a general contest model that can be formulated in a unified framework.Despite an extensive and established theoretical literature, much less effort has been devoted to empirically investigate individual behavior in different contests and compare such behavior with theoretical predictions. The main reason is that it is not trivial to measure individual effort in the field since the researcher can only observe the performance of contestants, which is a function of effort, ability and luck (Ericsson and Charness, 1994). The majority of empirical studies use either firm level data (Prendergast, 1999) or sports data (Szymanski, 2003). Because it is typically difficult to measure the actual effort expended by players in the field, almost all of these studies focus solely on investigating whether the pattern of outcomes is consistent with the theoretical predictions.Controlled experimen...

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Section: Endogenous Prizes Spillovers and Externalitiesmentioning

confidence: 99%

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

2012

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“…The demand function for the homogeneous product is given by D(p) = a − p, with a > 0. All firms i are identical ex-ante, 6 Sacco and Schmutzler (2008) consider the reduced one-stage version of a two-stage Bertrand game, where investments precede price competition. They show that overinvestment is substantial.…”

Section: The Modelmentioning

confidence: 99%

“…It is unlikely that agents can coordinate on one of the asymmetric pure-strategy equilibria. We therefore refer to the following result of Sacco and Schmutzler (2008).…”

Section: Bertrand Competitionmentioning

confidence: 99%

“…5 The remaining results have not been observed elsewhere. Except for the unpublished working papers of Sacco and Schmutzler (2008) and Darai et al (2009), we are not aware of any other contribution that deals with investment games under ho-2 See the references at the end of this section. 3 In a related paper, Sacco and Schmutzler (2010) analyze the effects of increasing competition by changing the degree of substitutability in a differentiated product market.…”

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Competition and innovation: an experimental investigation

2010

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“…9 Several authors have also considered the case that prizes depend not only on the e¤ort of the winner, but also on the loser (Skaperdas 1992, Chung 1996, Baye et al 2010); Sacco and Schmutzler (2008) provide an experimental analysis.…”

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confidence: 99%

All-Pay Auctions: Implementation and Optimality

Jönsson

Schmutzler

2013

SSRN Journal

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This paper analyzes how all-pay auctions with endogenous prizes can be used to provide e¤ort incentives. We show that wide classes of e¤ort distributions can be implemented as equilibrium outcomes of such games. We also ask how all-pay auctions have to be structured so as to induce high expected highest e¤orts without generating excessive wasteful e¤orts of losers. All-pay auctions with endogenous prizes can do better than all-pay auctions with …xed prizes in this respect, in particular, when the prize function is approximately linear. We use the results to compare patents and prizes as innovation incentives, and to explore promotion incentives in organizations.

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All-Pay Auctions with Negative Prize Externalities: Theory and Experimental Evidence

Cited by 11 publications

References 12 publications

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

Competition and innovation: an experimental investigation

All-Pay Auctions: Implementation and Optimality

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