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Two-stage contests with effort-dependent rewards

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  • Sela, Aner

Abstract

We study two-stage all-pay contests where there is synergy between the stages. The reward for each contestant is fixed in the first stage while it is effort-dependent in the second one. We assume that a player's effort in the first stage either increases (positive synergy) or decreases (negative synergy) his reward in the second stage. The subgame perfect equilibrium of this contest is analyzed with either positive or negative synergy. We show, in particular, that whether the contestants are symmetric or asymmetric their expected payoffs may be higher under negative synergy than under positive synergy. Consequently, they prefer smaller rewards (negative synergy) over higher ones (positive synergy).

Suggested Citation

  • Sela, Aner, 2016. "Two-stage contests with effort-dependent rewards," CEPR Discussion Papers 11113, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11113
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    More about this item

    Keywords

    Effort-dependent rewards; Two-stage all-pay contests;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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