Past exam of the mathematics course of the University of Cambridge 2014 iii Paper 39 3 Solution Created 2026-10-03 Updated 2026-10-06
Use the usual continuous-distribution convention , , and write . After observing , the follower can win by matching it, because ties favor the follower. Its best response is to match when and choose zero when ; the indifferent equality has probability zero. Thus the leader wins with probability and a leader of type maximizesBids above are dominated by bidding . This is the leader optimization in a sequential private-value all-pay contest. Since is a concave function, is concave. An interior optimum satisfies , with the usual endpoint conditions when that equation has no interior solution.
For precision, select the smallest maximizer when the leader is indifferent. This defines a Stackelberg equilibrium and supplies the printed strict conditional comparison at the threshold type. Let . The density is positive: if it vanished there, its nonnegative nonincreasing continuation would force to remain up to , which is impossible. At the median,If this is positive, every maximizer is strictly greater than , so the leader wins with probability greater than . If it is negative, every maximizer is strictly smaller than . If it is zero, is a maximizer, and the smallest maximizer is at most . Therefore the median-density threshold for the leader in an all-pay contest isStrict concavity of would make the optimum unique, removing the selection convention. With mere concavity, the printed assertion needs that convention at equality. For example, and make all bids optimal, and choosing makes the leader more likely to win even though the strict threshold is not exceeded.
The same issue can occur at an interior type, rather than just an endpoint. A continuously differentiable concave distribution isIts density decreases from to , is constant on , and then decreases to ; integration gives . Its median is . At , every bid in maximizes , and choosing gives winning probability . This confirms the genuine best-response selection at a flat leader objective issue. The smallest-maximizer convention avoids it; the threshold type has zero ex ante probability.
The unconditional comparison is valid for every optimal selection. Zero effort guarantees the leader payoff zero, so an optimal bid satisfiesConsequently . If has the continuous distribution , the probability integral transform makes uniform on . Taking expectations proves the ex ante follower advantage in a sequential all-pay contest:For strictly increasing atom-free , optimal bids in fact satisfy for almost every , so the first inequality is strict. Conditional advantage for unusually high leader types is therefore compatible with an unconditional follower advantage.