Partnerships, signaling, and contests

This dissertation consists of three entirely self-contained essays. All of the essays are concerned with the analysis of strategic behavior by asymmetrically informed individuals in auctions or auction-like mechanisms. The settings this analysis is applied to and the points that are emphasized are, however, very different in each essay. When a partnership that is in possession of a single asset needs to be dissolved, it must somehow be decided which partner is to obtain the asset and how the other partners are to be compensated. In the first essay, I propose a simple and detail-free dissolution mechanism for asymmetric partnerships. Partners bid for the asset in an auction where the highest bidder wins. The auction revenue is split among all partners according to the asymmetric shares they own in the partnership. I find that the loss in expected gains from trade when using such an auction instead of the incentive efficient mechanism is very small. In the second essay I develop a model of oligopolistic firms that have private information about their cost structure. Prior to competing in the market a competitive advantage, i. e., a cost reducing technology, is allocated to a subset of the firms by means of a multi-object auction. After the auction either all bids or only the prices to be paid are revealed to all firms. This provides an opportunity for signaling. Whether there exists an equilibrium in which bids perfectly identify the bidders’ costs generally depends on the type and fierceness of the market competition, the specific auction format, and the bid announcement policy. In the final essay I consider a variant of the Tullock rent-seeking contest. Under symmetric information I determine equilibrium strategies and prove their uniqueness. Then, I assume contestants to be privately informed about their costs of effort. I prove existence of a pure-strategy equilibrium and provide a sufficient condition for uniqueness. Comparing different informational settings I find that if players are uncertain about the costs of all players, aggregate effort is lower than under both private and complete information. Yet rent dissipation might still be smaller in the latter settings. Numerical examples provide additional insight into the impact of the information structure.