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Abstract:
Despite the potential for significant insights, the theory of contests has been rarely applied to price competition between firms. To help address this gap, our paper provides a general framework that encompasses a broad family of all-pay contests and sales competition models. For the case of two players, we analytically characterize all potential equilibria for any arbitrary level of asymmetry. To further demonstrate the power of this approach and the connections between contests and sales competition, we then consider a number of applications, including an advertising platform’s optimal choice of fees.