We study the effect of rigid and flexible bid caps on contestants’ aggregate costs and aggregate bids in all-pay contests with a large number of heterogeneous contestants and prizes. We show that rigid caps always decrease aggregate costs, whereas flexible caps have essentially no effect on aggregate costs. Rigid caps decrease aggregate bids when costs are linear or concave, but increase aggregate bids under some conditions when costs are convex. Flexible caps always decrease aggregate bids.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics