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Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions

Llorente-Saguer, Aniol; Sheremeta, Roman M.; Szech, Nora

A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the “discouragement effect.” Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer’s revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the iscouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.

Zugehörige Institution(en) am KIT Institut für Volkswirtschaftslehre (ECON)
Publikationstyp Forschungsbericht
Jahr 2016
Sprache Englisch
Identifikator DOI(KIT): 10.5445/IR/1000055425
ISSN: 2190-9806
URN: urn:nbn:de:swb:90-554255
KITopen ID: 1000055425
Verlag KIT, Karlsruhe
Umfang 32 S.
Serie Working paper series in economics ; 88
Schlagworte all-pay auction, rent-seeking, bid-caps, tie-breaks, contest design
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