Optimal Favoritism in All-Pay Auctions and Lottery Contests

Jorg Franke, Wolfgang Leininger, Cedric Waser

Research output: Contribution to journalArticle

6 Citations (Scopus)
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Abstract

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.
Original languageEnglish
Pages (from-to)22-37
Number of pages16
JournalEuropean Economic Review
Volume104
Early online date16 Feb 2018
DOIs
Publication statusPublished - 1 May 2018

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Keywords

  • All-pay auction
  • Favoritism
  • Head start
  • Lottery contest
  • Revenue dominance

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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