Ruhr Economic Papers

Ruhr Economic Papers #544

Alliance Formation in Contests with Incomplete Information

by Lars P. Metzger

TUD, 03/2015, 39 S./p., 8 Euro, ISBN 978-3-86788-622-2 DOI: 10.4419/86788622

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Abstract

This paper studies a contest in which players with unobservable types may form an alliance in a pre-stage of the game to join their forces and compete for a prize. We characterize the pure strategy equilibria of this game of incomplete information. We show that if the formation of an alliance is voluntary, players do not reveal private information in the process of alliance formation in any equilibrium. In this case there exists a pooling equilibrium without alliances with a unique effort choice in the contest and there exist equilibria in which all types prefer to form an alliance. If the formation of an alliance can be enforced by one player with positive probability there exists an equilibrium in which only the low types prefer to form an alliance.

JEL-Classification: C72, D72, D74, D82

Keywords: Alliance formation; contest; incomplete information; free-riding; signalling

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