Jump bidding in the war of attrition

Abstract

This paper studies jump bidding in a war of attrition, where a bidder makes a costly preemptive commitment to deter opponents. We identify a Double-Edged Sword Effect: while jump bidding increases early-stage costs for the jump bidder, it enhances her ability to deter high-valuation opponents in later stages. The bidder jump bids when she believes that her opponent is likely to have a high valuation and not quit soon, such as when the valuation distribution is convex or bounded away from zero. Although jump bidding may result in inefficient allocation, it reduces total attrition costs and can improve overall welfare ex ante.