Unique Equilibrium in Contests with Incomplete Information
University of Zurich, Department of Economics, Working Paper No. 133, Revised version
43 Pages Posted: 4 Nov 2015 Last revised: 14 Nov 2018
Date Written: November 14, 2018
Abstract
Considered are imperfectly discriminating contests in which players may possess private information about the primitives of the game, such as the contest technology, valuations of the prize, cost functions, and budget constraints. We find general conditions under which a given contest of incomplete information admits a unique pure-strategy Nash equilibrium. In particular, provided that all players have positive budgets in all states of the world, existence requires only the usual concavity and convexity assumptions. Information structures that satisfy our conditions for uniqueness include independent private valuations, correlated private values, pure common values, and examples of interdependent valuations. The results allow dealing with inactive types, asymmetric equilibria, population uncertainty, and the possibility of resale. It is also shown that any player that is active with positive probability ends up with a positive net rent.
Keywords: Imperfectly discriminating contests, private information, existence and uniqueness of equilibrium, budget constraints, rent dissipation
JEL Classification: C72, D23, D72, D82
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