No fight, no loss: underinvestment in experimental contest games

<Para ID="Par1">This paper reports a series of laboratory experiments intended to identify conditions that attenuate the overdissipation of rents typical of experimental contest games. We examine the influences on contestant behavior of the observability and timing of preceding bids, allocation rules for the situation when no bids occur (random prize allocation vs. prize loss) and matching protocol for repeated contests involving pairs of bidders. Our results show that the simultaneous presence of three factors (simultaneous bids, random prize allocation if no bids occur and fixed matching) allows contestants to coordinate to realize efficient outcomes (underbidding). However, the absence of one of these factors causes overbidding to return. From the perspective of theoretical prediction, the decision to allocate the prize even when no bids occur (no fight, no loss) should be irrelevant. However, this allocation decision may strongly influence behaviour (by encouraging submission of efficient and minimal bids) if combined with features that encourage collusion (fixed matching and symmetry). Copyright Springer-Verlag Berlin Heidelberg 2015