Costly participation and default allocations in all-pay contests

Shelegia, Sandro and Wilson, Chris M. (2022): Costly participation and default allocations in all-pay contests.

Abstract

Some important contests have participation costs and `default allocations’ where the contest prize is still awarded even when no-one actively competes. This paper incorporates flexible forms of these features into a general (single-prize) all-pay contest model under arbitrary asymmetry. We offer a tractable equilibrium characterization that fundamentally rests on only two measures (per-player): `reach' and a new concept, `strength'. We then i) analyze how participation costs and default allocations can be employed as novel tools in contest design, ii) solve `clearinghouse' models of price competition under full asymmetry for the first time, and iii) offer a new equilibrium refinement for symmetric multi-player all-pay contests. Throughout, the combination of participation costs and default allocations is key and often reverses otherwise familiar intuitions.

• Item Type: MPRA Paper
• Language: English
• Keywords: All-Pay Contests; Participation Costs; Default Allocations; Endogenous Participation; Contest Design; Clearinghouse
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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