Designing contests between heterogeneous contestants: an experimental study of tie-breaks and bid-caps in all-pay auctions

Llorente-Saguer, Aniol; Sheremeta, Roman M.; Szech, Nora

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%T Designing contests between heterogeneous contestants: an experimental study of tie-breaks and bid-caps in all-pay auctions
%A Llorente-Saguer, Aniol
%A Sheremeta, Roman M.
%A Szech, Nora
%P 32
%V SP II 2016-307
%D 2016
%K all-pay auction; bid-caps; contest design; rent-seeking; tie-breaks
%~ WZB
%X A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the "discouragement effect." Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer's revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the discouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.
%C DEU
%C Berlin
%G en
%9 Arbeitspapier
%W GESIS - http://www.gesis.org
%~ SSOAR - http://www.ssoar.info