Optimal Favoritism in All-Pay Auctions and Lottery Contests

Franke, Jörg and Leininger, Wolfgang and Wasser, Cédric. (2018) Optimal Favoritism in All-Pay Auctions and Lottery Contests. European Economic Review, 104. pp. 22-37.

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Official URL: https://edoc.unibas.ch/72613/

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We analyze the revenue-enhancing potential of favoring specific contestants in complete-information all-pay auctions and lottery contests with several heterogeneous contestants. Two instruments of favoritism are considered: head starts that are added to the bids of specific contestants and multiplicative biases that give idiosyncratic weights to the bids. In the all-pay auction, head starts are more effective than biases while optimally combining both instruments even yields first-best revenue. In the lottery contest, head starts are less effective than biases and combining both instruments cannot further increase revenue. As all-pay auctions revenue-dominate lottery contests under optimal biases, we thus obtain an unambiguous revenue-ranking of all six combinations of contest formats and instruments.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Mikroökonomische Theorie (Nöldeke)
UniBasel Contributors:Wasser, Cédric
Item Type:Article, refereed
Article Subtype:Research Article
Note:Publication type according to Uni Basel Research Database: Journal article
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Last Modified:18 Nov 2019 10:44
Deposited On:12 Nov 2019 08:57

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