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American Economic Review: Vol. 89 No. 1 (March 1999)

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The Generalized War of Attrition

Article Citation

Bulow, Jeremy, and Paul Klemperer. 1999. "The Generalized War of Attrition." American Economic Review, 89(1): 175-189.

DOI: 10.1257/aer.89.1.175

Abstract

The authors model a war of attrition with N+K firms competing for N prizes. In a 'natural oligopoly' context, the K - 1 lowest-value firms drop out instantaneously, even though each firm's value is private information to itself. In a 'standard setting' context, in which every competitor suffers losses until a standard is chosen, even after giving up on its own preferred alternative, each firm's exit time is independent both of K and of other players' actions. The authors' results explain how long it takes to form a winning coalition in politics. Solving the model is facilitated by the revenue equivalence theorem.

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Authors

Bulow, Jeremy (Stanford U)
Klemperer, Paul (Nuffield College, Oxford U)

JEL Classifications

C13: Estimation
D43: Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
O31: Innovation and Invention: Processes and Incentives


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