Contest design and optimal endogenous entry
AbstractThis paper derives the effort-maximizing contest rule and the optimal endogenous entry in a context where potential participants bear fixed entry costs. The organizer is allowed to design the contest under a fixed budget with two strategic instruments: he sets the value of the prize purse, and arranges a monetary transfer (entry subsidy or fee) for each participating contestant. In other words, the budget can either be used to subsidize participation or an entry fee can be charged to fund the prize purse. The results show that the optimally designed contest attracts exactly two participating contestants in its unique subgame perfect equilibrium (when there is a positive fixed entry cost) and extracts all the surplus from participating contestants. The study also shows that the direction and amount of the monetary transfer depend on the magnitude of the entry cost: the contest organizer subsidizes entry when contestants bear substantial entry costs, but charges an entry fee to fund the prize purse whenever the entry cost is sufficiently low.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 945.
Date of creation: Nov 2006
Date of revision:
Contest; Endogenous Entry; Entry Cost; Subsidy; Entry Fee;
Other versions of this item:
- D7 - Microeconomics - - Analysis of Collective Decision-Making
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-01 (All new papers)
- NEP-COM-2006-12-01 (Industrial Competition)
- NEP-IND-2006-12-01 (Industrial Organization)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
- Gradstein, Mark & Konrad, Kai A, 1999. "Orchestrating Rent Seeking Contests," Economic Journal, Royal Economic Society, vol. 109(458), pages 536-45, October.
- Sherwin Rosen, 1985.
"Prizes and Incentives in Elimination Tournaments,"
NBER Working Papers
1668, National Bureau of Economic Research, Inc.
- Baye, M.R. & Kovenock, D. & De Vries, C.G., 1992.
"Rigging the Lobbying Process: An Application of the All- Pay Auction,"
9-92-2, Pennsylvania State - Department of Economics.
- Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-94, March.
- Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
- Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, vol. 44(2), pages 217-226, August.
- Frank R. Lichtenberg, 1990.
"Government Subsidies to Private Military R&D Investment: DOD's IR&D Policy,"
NBER Working Papers
2745, National Bureau of Economic Research, Inc.
- Lichtenberg, F.R., 1988. "Government Subsidies To Private Military R&D Investmen: Dod'S Ir&D Policy," Papers fb-_88-01, Columbia - Graduate School of Business.
- Thomas, Jonathan P. & Wang, Zhewei, 2013. "Optimal punishment in contests with endogenous entry," Journal of Economic Behavior & Organization, Elsevier, vol. 91(C), pages 34-50.
- Fu, Qiang & Lu, Jingfeng & Lu, Yuanzhu, 2012. "Incentivizing R&D: Prize or subsidies?," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 67-79.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.