War of Attrition with Affiliated Values

29 Pages Posted: 17 Sep 2017

See all articles by Chang-Koo Chi

Chang-Koo Chi

Norwegian School of Economics (NHH) - Department of Economics

Pauli Murto

Helsinki School of Economics & Business Administration

Juuso Valimaki

Helsinki School of Economics; University of Southampton - Division of Economics

Date Written: September 7, 2017

Abstract

We study the war of attrition between two players when the players’ signals are binary and affiliated. Our model covers both the case of common values and affiliated private values. We characterize the unique symmetric equilibrium and demonstrate the possibility of nonmonotonic symmetric equilibria, i.e. equilibria where the player with a lower signal wins with positive probability. Such an outcome is inefficient in the case of private valuations. We compare the war of attrition to other related mechanisms, the all-pay auction and standard first and second-price auctions. The war of attrition dissipates the bidders’ rents more effectively but at the same time distorts the allocation more severely than the other mechanisms. In terms of expected revenues, the war of attrition dominates the standard auctions, but the ranking against the all-pay auction is ambiguous.

Keywords: War of Attrition, affiliated signals

JEL Classification: D44, D82

Suggested Citation

Chi, Chang-Koo and Murto, Pauli and Valimaki, Juuso, War of Attrition with Affiliated Values (September 7, 2017). NHH Dept. of Economics Discussion Paper No. 16/2017, Available at SSRN: https://ssrn.com/abstract=3036996 or http://dx.doi.org/10.2139/ssrn.3036996

Chang-Koo Chi (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Pauli Murto

Helsinki School of Economics & Business Administration ( email )

P.O. Box 21210
Helsinki 00100, 00101
Finland

Juuso Valimaki

Helsinki School of Economics ( email )

P.O. Box 21210
Helsinki 00100, 00101
Finland

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 23 8059 3263 (Phone)

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