The total revenue from an “all-pay contest” is the sum of expenditures from all individual players, so it is important to ask whether it increases with the number of actual players—which is our definition of competition. This is the first paper to use field data to study this question empirically. Using novel instrumental variables, we document strong empirical evidence that the revenue of a penny auction—which is a form of all-pay contest that recently emerged on the Internet—increases with the number of bidders. Our findings cast doubt on the standard model of all-pay contests that presumes that all bidders are fully informed.
Review of Industrial Organization – Springer Journals
Published: Mar 23, 2016
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