Information alliances in contests with budget limits

We study the role of information exchange that may occur in alliances in a contest without noise. Contestants learn their own limits of what they can spend in a contest. They may also form alliances and learn the limits of all players who are within the same alliance. Then they decide independently about their own contest efforts. Alliance formation for the purpose of information exchange is beneficial for members of the same alliance and neutral for all other players. Also, a merger between alliances is beneficial for their members. Further, we identify and discuss the set of stable alliance combinations. © 2011 Springer Science+Business Media, LLC.