Two-player Contest Research Articles

Strategic Entry, Rent-Seeking and Transfers

In this paper, we consider strategic entry decisions in a two-player political transfer contest, i.e., the prize is a transfer from one lobby group to another. The size of the transfer depends on the lobbying effort of the political active lobby groups. We show that the entry decision involves a trade-off between an influence loss and a strategic gain. The influence loss is related to the value of the foregone option to influence policymaking. The strategic gain is related to the strategic behavior of the competitor. The existence of symmetric equilibria in which both lobby groups enter the contest and asymmetric equilibria in which only one lobby group enters is proved. In the latter type of equilibrium, rent-seeking expenditures are substantially reduced, and the strategic behavior of the active lobby group acts as a barrier to entry by rewarding the competitor for staying out of the contest.

To fight or not to fight?

This paper considers the players' behaviour in an asymmetric two-player contest. When do they decide to “struggle” and when to “subjugate”? Analysing contest-success functions it is found that two crucial prerequisites for “struggle” or “war” have to be met. Thus, such an equilibrium is possible but restrictive. If a self-interested rule-setter chooses the contest-success function endogenously we show that one player will always subjugate. Applications to rent-seeking and environmental regulation are discussed.