Optimal favoritism in all-pay auctions and lottery contests

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 multiplic...

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Bibliographic Details
Published inEuropean economic review Vol. 104; pp. 22 - 37
Main Authors Franke, Jörg, Leininger, Wolfgang, Wasser, Cédric
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.05.2018
Subjects
All-pay auction
Favoritism
Head start
Lottery contest
Revenue dominance
D44
All-pay auction
Head start
Lottery contest
Favoritism
Revenue dominance
D72
C72
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Summary: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.
ISSN:0014-2921
1873-572X
DOI:10.1016/j.euroecorev.2018.02.001