Common-Value All-Pay Auctions with Asymmetric Information and Bid Caps

31 Pages Posted: 30 Sep 2014

See all articles by Ezra Einy

Ezra Einy

Ben-Gurion University of the Negev

Ori Haimanko

Ben-Gurion University of the Negev - Department of Economics; Yale University - Cowles Foundation

Ram Orzach

Oakland University - Department of Economics

Aner Sela

Ben-Gurion University of the Negev - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: September 2014

Abstract

We study two-player common-value all-pay auctions (contests) with asymmetric information under the assumption that one of the players has an information advantage over his opponent and both players are budget-constrained. We generalize the results for all-pay auctions with complete information, and show that in all-pay auctions with asymmetric information, sufficiently high (but still binding) bid caps do not change the players' expected total effort compared to the benchmark auction without any bid cap. Furthermore, we show that there are bid caps that increase the players' expected total effort compared to the benchmark. Finally, we demonstrate that there are bid caps which may have an unanticipated effect on the players' expected payoffs – one player's information advantage may turn into a disadvantage as far as his equilibrium payoff is concerned.

Keywords: asymmetric information, bid caps, common-value all-pay auctions, information advantage

JEL Classification: C72, D44

Suggested Citation

Einy, Ezra and Haimanko, Ori and Orzach, Ram and Sela, Aner, Common-Value All-Pay Auctions with Asymmetric Information and Bid Caps (September 2014). CEPR Discussion Paper No. DP10173, Available at SSRN: https://ssrn.com/abstract=2503403

Ezra Einy (Contact Author)

Ben-Gurion University of the Negev ( email )

Beer-Sheva 84105
Israel

Ori Haimanko

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Ram Orzach

Oakland University - Department of Economics ( email )

Rochester, MI 48309-4401
United States

Aner Sela

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+972 8 647 2309 (Phone)
+972 8 647 2941 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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