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 language | English |
---|---|
Pages (from-to) | 22-37 |
Number of pages | 16 |
Journal | European Economic Review |
Volume | 104 |
Early online date | 16 Feb 2018 |
DOIs | |
Publication status | Published - 1 May 2018 |
Keywords
- All-pay auction
- Favoritism
- Head start
- Lottery contest
- Revenue dominance
ASJC Scopus subject areas
- Finance
- Economics and Econometrics