Contests within and between groups

This paper examines behavior (the oretically and experimentally) in a two-stage group contest where the fi rst stage comprises of intra - group contests, followed by an inter-group contest in the second stage. Rewards accrue only to the members of the winning group in the inter-group contest, with the winners of the intra-group contest within that group receiving a greater reward. The model generates a discouragement effect, where losers from the first stage exert less effort in the second stage than winners. In contrast to previous frameworks of sequential contests, we show that a prior win may be disadvantageous, generating lower profits for first stage winners as compared to losers. We also consider asymmetry between groups arising from a biased contest success function in the second stage. We show that although the asymmetry occurs in the second stage, the effect of the asymmetry plays out in the first stage, with the intra-group contest being more intense within the advantaged group. Experimental results find broad support for the qualitative predictions of the model. However, we find that relative overcontribution in the second stage by losers is higher than by winners of the first stage, implying that losers bear a higher burden of the group contribution than deemed strategic.