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All-Pay Auctions with Extra Prize: A Partial Exclusion Principle

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  • Matthias Dahm

    (School of Economics, University of Nottingham)

Abstract

This paper studies the effects of a specific affirmative action policy in complete information all-pay auctions when players differ in ability. We call this policy an extra prize. The contest organiser splits the prize of the competition into a main prize and an extra prize. Extra prizes differ from second prizes, because they are targeted towards disadvantaged (low-ability) agents. We consider a setting with one high-ability and two low-ability contestants and fully characterise equilibrium. Assuming that the contest organiser aims to maximise expected total effort, we show that (i) almost any extra prize is preferable to a standard all-pay auction without extra prize; (ii) the exclusion principle (Baye, Kovenock and de Vries, 1993) can be implemented by a wide range of sufficiently large extra prizes; and (iii) partial exclusion by means of an appropriately chosen extra prize benefits the organiser more than complete exclusion.

Suggested Citation

  • Matthias Dahm, 2017. "All-Pay Auctions with Extra Prize: A Partial Exclusion Principle," Discussion Papers 2017-01, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2017-01
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    References listed on IDEAS

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    1. Dahm, Matthias & Esteve-González, Patricia, 2018. "Affirmative action through extra prizes," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 123-142.
    2. Franke, Jörg & Kanzow, Christian & Leininger, Wolfgang & Schwartz, Alexandra, 2014. "Lottery versus all-pay auction contests: A revenue dominance theorem," Games and Economic Behavior, Elsevier, vol. 83(C), pages 116-126.
    3. Michael R. Baye & Dan Kovenock & Casper G. Vries, 1996. "The all-pay auction with complete information," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 209-223, Springer.
    4. Bertoletti, Paolo, 2008. "A note on the Exclusion Principle," Journal of Mathematical Economics, Elsevier, vol. 44(11), pages 1215-1218, December.
    5. Franke, Jörg & Leininger, Wolfgang & Wasser, Cédric, 2018. "Optimal favoritism in all-pay auctions and lottery contests," European Economic Review, Elsevier, vol. 104(C), pages 22-37.
    6. Michael R. Baye & Dan Kovenock & Casper G. Vries, 2008. "Rigging the lobbying process: An application of the all-pay auction," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 331-336, Springer.
    7. Domenico Menicucci, 2006. "Banning Bidders from All-pay Auctions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(1), pages 89-94, September.
    8. Pastine, Ivan & Pastine, Tuvana, 2012. "Student incentives and preferential treatment in college admissions," Economics of Education Review, Elsevier, vol. 31(1), pages 123-130.
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    10. Cohen, Chen & Sela, Aner, 2008. "Allocation of prizes in asymmetric all-pay auctions," European Journal of Political Economy, Elsevier, vol. 24(1), pages 123-132, March.
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    12. Xiao, Jun, 2016. "Asymmetric all-pay contests with heterogeneous prizes," Journal of Economic Theory, Elsevier, vol. 163(C), pages 178-221.
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    Cited by:

    1. Dahm, Matthias & Esteve-González, Patricia, 2018. "Affirmative action through extra prizes," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 123-142.
    2. repec:lan:wpaper:156630581 is not listed on IDEAS

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    Keywords

    Asymmetric contests; multi-prize contests; equality of opportunity; affirmative action; discrimination; prize structure; exclusion principle;
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