Premium
PRIZE SCARCITY AND OVERDISSIPATION IN ALL‐PAY AUCTIONS
Author(s) -
Allison Blake A.,
Lepore Jason J.,
Shafran Aric P.
Publication year - 2021
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12935
Subject(s) - common value auction , economics , bidding , microeconomics , scarcity , logit , econometrics , mathematical economics
We compare bidding behavior in complete information all‐pay auction experiments that vary in the prizes and number of players. We confirm the observation from prior single‐prize experiments that there is overbidding relative to equilibrium predictions. Our primary results are that increasing the number of prizes and players proportionally does not reduce overbidding but increasing the number of prizes with a fixed number of players eliminates overbidding. We conclude that the overbidding phenomenon is related to the scarcity of the prize. We provide new theoretical results on the multi‐prize logit equilibrium, and our experimental results are qualitatively consistent with logit equilibrium predictions. ( JEL D72, D91, C91, D44)