Caps in asymmetric all-pay auctions with incomplete information

We study asymmetric all-pay auctions where two privately informed agents bid for a prize. We show that capping the bids is profitable for a designer who wants to maximize the sum of bids (revenue). This finding confims the results of Che and Gale (1998) in the context of incomplete information and completes the analysis of Gavious, Moldovanu and Sela (2002) by analyzing the case of ex-ante asymmetric players.All-pay auctions

Bidding markets with financial constraints

We develop a model of bidding markets with financial constraints a la Che and Gale (1998b) in which two firms optimally choose their budgets. First, we provide an alternative explanation for the dispersion of markups and “money left on the table” across procurement auctions. Interestingly, this explanation does not hinge on significant private information but on differences, both endogenous and exogenous, in the availability of financial resources. Second, we explain why the empirical analysis of the size of markups may be biased downwards or upwards with a bias positively correlated with the availability of financial resources when the researcher assumes that the data are generated by the standard auction model. Third, we show that large concentration and persistent asymmetries in market shares together with occasional leadership reversals can arise as a consequence of the firms internal financial decisions even in the absence of exogenous shocks

Equilibrium Predictions in Wholesale Electricity Markets

We review supply function equilibrium models and their predictions on market outcomes in the wholesale electricity auctions. We discuss how observable market characteristics such as capacity constraints, number of power suppliers, load distribution and auction format affect the behavior of suppliers and performance of the market. We specifically focus on the possible market power exerted by pivotal suppliers and the comparison between discriminatory and uniform-price auctions. We also describe capacity investment behavior of electricity producers in the restructured industry.Electricity markets; Supply function equilibrium; Markov perfect equilibrium; electricity auctions; pivotal suppliers; capacity investment.

Sequential Two-Prize Contests

We study two-stage all-pay auctions with two identical prizes. In each stage, players compete for one prize. Each player may win either one or two prizes. We analyze the equilibrium strategies where players’ marginal values for the prizes are either declining or incliningMulti-prize contests, All-pay auctions

Using Spectrum Auctions to Enhance Competition in Wireless Services

Spectrum auctions are used by governments to assign and price licenses for wireless communications. Effective auction design recognizes the importance of competition, not only in the auction, but in the downstream market for wireless communications. This paper examines several instruments regulators can use to enhance competition and thereby improve market outcomes.

All-Pay Auctions with Variable Rewards

We study all-pay auctions with variable rewards under incomplete information. In standard models, a reward depends on a bidder!s privately known type; however, in our model it is also a function of his bid. We show that in such models there is a potential for paradoxical behavior where a reduction in the rewards or an increase in costs may increase the expected sum of bids or alternatively the expected highest bidAll-Pay Auctions, Contests, R & D Races, Rent-Seeking.

Caps on Bidding in All-Pay Auctions: Comments on the Experiments of A. Rapoport and W. Amaldoss.

In an article published in this journal, Rapoport and Amaldoss (2000, Journal of Economic Behavior and Organization, 42, 483-521) analyze symmetric and asymmetric investment games similar to two-player all-pay auctions with bid caps. In this note, we correct an error in their characterization of the set of Nash Equilibria of their symmetric investment game. In particular, we find Equilibria that Rapoport and Amaldoss (2000) fail to identify. Taking these Equilibria into account has important implications for the analysis of data from Rapoport and Amaldoss’s experiments.All-Pay Auction ; Mixed strategies ; Discrete strategy space ; Bid caps ; Experiments

Spectrum Auctions

Auctions have emerged as the primary means of assigning spectrum licenses to companies wishing to provide wireless communication services. Since July 1994, the Federal Communications Commission (FCC) has conducted 33 spectrum auctions, assigning thousands of licenses to hundreds of firms. Countries throughout the world are conducting similar auctions. I review the current state of spectrum auctions. Both the design and performance of these auctions are addressed.Auctions, Spectrum Auctions, Multiple Item Auctions

The Supply Function Equilibrium and Its Policy Implications for Wholesale Electricity Auctions

The supply function equilibrium provides a game-theoretic model of strategic bidding in oligopolistic wholesale electricity auctions. This paper presents an intuitive account of current understanding and shows how welfare losses depend on the number of firms in the market and their asymmetry. Previous results and general recommendations for divisible-good/multi-unit auctions provides guidance on the design of the auction format; setting the reservation price; the rationing rule; and restrictions on the offer curves in wholesale electricity auctions.Wholesale Electricity Markets; Supply Function Equilibria; Competition Policy

Designing Contests Between Heterogeneous Contestants: An Experimental Study of Tie-Breaks and Bid-Caps in All-Pay Auctions*

A well-known theoretical result in the contest literature is that greater heterogeneity decreases investments of contestants because of the “discouragement effect.” Levelling the playing field by favouring weaker contestants through strict bid-caps and favourable tie-breaking rules can reduce discouragement and increase the designer\u27s revenue. We test these predictions in a laboratory experiment. Our data confirm that placing bid-caps and using favourable tie-breaking rules significantly diminishes discouragement of weaker contestants. However, its impact on revenues is muted by the fact that the encouragement of weaker contestants is offset by stronger contestants competing less aggressively, even when not predicted by theory. We discuss deviations from the Nash predictions in light of different behavioural approaches