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Innovation Contests with Entry Auction

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  • Giebe, Thomas

Abstract

We consider procurement of an innovation from heterogeneous sellers. Innovations are random but depend on unobservable effort and private information. We compare two procurement mechanisms where potential sellers first bid in an auction for admission to an innovation contest. After the contest, an innovation is procured employing either a fixed prize or a first-price auction. We characterize Bayesian Nash equilibria such that both mechanisms are payoff-equivalent and induce the same efforts and innovations. In these equilibria, signaling in the entry auction does not occur since contestants play a simple strategy that does not depend on rivals' private information.

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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 307.

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Date of creation: Feb 2010
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Handle: RePEc:trf:wpaper:307

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Keywords: Contest; Auction; Innovation; Research; R\&D; Procurement; Signaling;

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References

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  1. Ding, Wei & Wolfstetter, Elmar G., 2009. "Prizes and Lemons: Procurement of Innovation under Imperfect Commitment," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 262, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Hao Jia, 2008. "A stochastic derivation of the ratio form of contest success functions," Public Choice, Springer, vol. 135(3), pages 125-130, June.
  3. Schweinzer, Paul & Segev, Ella, 2008. "The optimal prize structure of symmetric Tullock contests," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 250, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  5. 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.
  6. Fu, Qiang & Lu, Jingfeng, 2007. "Unifying Contests: from Noisy Ranking to Ratio-Form Contest Success Functions," MPRA Paper 6617, University Library of Munich, Germany.
  7. Yeon-Koo Che & Ian Gale, 2000. "Optimal Design of Research Contests," Econometric Society World Congress 2000 Contributed Papers 1784, Econometric Society.
  8. Richard L. Fullerton & Bruce G. Linster & Michael McKee & Stephen Slate, 2002. "Using Auctions To Reward Tournament Winners: Theory and Experimental Investigations," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 62-84, Spring.
  9. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
  10. Luis Corchon & Matthias Dahm, 2007. "Foundations For Contest Success Functions," Economics Working Papers we070401, Universidad Carlos III, Departamento de Economía.
  11. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-90, September.
  12. Anja Schöttner, 2005. "Fixed-Prize Tournaments versus First-Price Auctions in Innovation Contests," SFB 649 Discussion Papers SFB649DP2005-041, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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