Ruhr Economic Papers

Ruhr Economic Papers #524

Revenue Maximizing Head Starts in Contests

by Jörg Franke, Wolfgang Leininger and Cédric Wasser

TUD, 12/2014, 20 S./p., 8 Euro, ISBN 978-3-86788-599-7 DOI: 10.4419/86788599

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Abstract

We characterize revenue maximizing head starts for all-pay auctions and lottery contests with many heterogeneous players. We show that under optimal head starts all-pay auctions revenue-dominate lottery contests for any degree of heterogeneity among players. Moreover, all-pay auctions with optimal head starts induce higher revenue than any multiplicatively biased all-pay auction or lottery contest. While head starts are more effective than multiplicative biases in all-pay auctions, they are less effective than multiplicative biases in lottery contests.

JEL-Classification: C72, D72

Keywords: All-pay auction; lottery contest; head start; revenue dominance

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