Asymmetric all‐pay auctions with spillovers

Abstract

When opposing parties compete for a prize, the sunk effort players exert during the conflict can affect the value of the winner's reward. These spillovers can have substantial influence on the equilibrium behavior of participants in applications such as lobbying, warfare, labor tournaments, marketing, and R&D races. To understand this influence, we study a general class of asymmetric, two‐player all‐pay auctions where we allow for spillovers in each player's reward. The link between participants' efforts and rewards yields novel effects; in particular, players with higher costs and lower values than their opponents sometimes extract larger payoffs.