DP5645 Multi-Battle Contests

Author(s): Kai A. Konrad, Dan Kovenock
Publication Date: April 2006
Keyword(s): all-pay auction, conflict, contest, discouragement, endogenous uncertainty, multi-stage, preemption, R&D, race
JEL(s): D72, D74
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5645

We study equilibrium in a multistage race in which players compete in a sequence of simultaneous move component contests. Players may win a prize for winning each component contest, as well as a prize for winning the overall race. Each component contest is an all-pay auction with complete information. We characterize the unique equilibrium analytically and demonstrate that it exhibits endogenous uncertainty. Even a large lead by one player does not fully discourage the other player, and each feasible state is reached with positive probability in equilibrium (pervasiveness). Total effort may exceed the value of the prize by a factor that is proportional to the maximum number of stages. Important applications are to war, sports, and R&D contests and the results have empirical counterparts there.