University of Cologne
Department of Economics
Albertus Magnus Platz
D-50923 Cologne
Germany
obos(at)uni-koeln(dot)de
Tel: +49 221 470 1476
Last updated: December 2009
University of Cologne
Department of Economics
Albertus Magnus Platz
D-50923 Cologne
Germany
obos(at)uni-koeln(dot)de
Tel: +49 221 470 1476
Last updated: December 2009
CV available in English [pdf] and in French [pdf]
Auction Theory - Contest Theory - Public Economics - Microeconomic Theory
Recent literature has shown that all-pay auctions raise more money for charity than winner-pay auctions. We demonstrate that the first-price and second-price winner-pay auctions outperform the first-price and second-price all-pay auction when bidders are sufficiently asymmetric. To prove it, we consider a framework with complete information. Complete information is realistic and corresponds to events that occur, for instance, in a local service club (such as a voluntary organization) or in a show business dinner.
We extend the all-pay auctions analysis of Krishna and Morgan (1997) to a stochastic competition setting. In the war of attrition it does not directly follow from the first order condition that the bidding equilibrium strategy is a weighted average of the bidding equilibrium strategies that would be chosen for each number of bidders. This result contrasts with the characterization of the bidding equilibrium strategies in the first-price all-pay auction as well as the winner-pay auctions. Our findings are applicable to future works on contests and charity auctions.
This paper examines a perfectly discriminating contest (all-pay auction) with two asymmetric players. Valuations are endogenous and depend on the effort each player invests in the contest. The shape of the valuation function is common knowledge and differs between the contestants. Some key properties of R&D races, lobbying activity and sport contests are captured by this framework. Once the unique equilibrium in mixed strategies analyzed, we derive a closed form of the expected expenditure of both players. We characterize the expected expenditure by the means of incomplete Beta functions. We focus on unordered valuations.
In their recent paper Goeree et al. (2005) determine that all-pay auctions are better for fundraising activities than lotteries. We show that the introduction of asymmetry among valuations with complete information could reverse this result. Complete information seems well suited to some charity environments.
Recent papers show that all-pay auction is better at raising money for charity than first-price auction with symmetric bidders and under incomplete information. Yet, this result is lost with bidders enough asymmetric and under complete information. In this paper, we consider a framework on charity auctions with asymmetric bidders under some incomplete information. We determine all-pay auction still runs more money than first-price auction. Thus, all-pay auctions should be seriously considered when one wants to organize a charity auction.