DP9315 Common-Value All-Pay Auctions with Asymmetric Information

Author(s): Ezra Einy, Ori Haimanko, Ram Orzach, Aner Sela
Publication Date: January 2013
Keyword(s): all-pay auctions, asymmetric information, information advantage
JEL(s): C72, D44, D82
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9315

We study two-player common-value all-pay auctions (contests) with asymmetric information under the assumption that one of the players has an information advantage over his opponent. We characterize the unique equilibrium in these contests, and examine the role of information in determining the players' expected efforts, probabilities of winning, and expected payoffs. In particular, we show that the players always have the same probability of winning the contest, and that their expected efforts are the same, but their expected payoffs are different. It is also shown that budget constraints may have an unanticipated effect on the players' expected payoffs, i.e., a player's information advantage may turn into a payoff disadvantage.