Mergers and collusion in all-pay auctions and crowdsourcing contests

We study the effects of bidder collaboration in all-pay auc-tions. We analyse both mergers, where the remaining play-ers are aware of the agreement between the cooperating participants, and collusion, where the remaining players are unaware of this agreement. We examine two scenarios: the sum-profit model where the auctioneer obtains the sum of all submitted bids, and the max-profit model of crowdsourcing contests where the auctioneer can only use the best submis-sions and thus obtains only the winning bid. We show that while mergers do not change the expected utility of the par-ticipants, or the principal’s utility in the sum-profit model, collusion transfers the utility from the non-colluders to the colluders. Surprisingly, we find that in some cases such col-laboration can increase the social welfare. Moreover, merg-ers and, curiously, also collusion can even be beneficial to the auctioneer under certain conditions