On the incentives to exacerbate polarization

Abstract

Abstract An organizer seeks to extract rents from competing interests in a polarized environment. We model these interests as three potential bidders, a neutral bidder, and two bidders who are “polarized” in that they prefer the neutral bidder to win rather than the other polarized bidder. The organizer cannot commit to an optimal mechanism, but can decide which bidders to allow to participate. While greater competition is generally thought to benefit the organizer, we identify conditions under which she increases expected revenue by preventing the neutral bidder from participating, thereby increasing the willingness to pay for polarized bidders. Thus, rather than seeking to bring about compromise, organizers have an incentive to exacerbate conflict. Excluding the neutral bidder always makes the auction less efficient, but the incentive to exclude her is greatest precisely when it lowers efficiency the most. We discuss applications in economics and politics (JEL D44, D62, D72).