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Endogenous Group Formation in Contests: Unobservable Sharing Rules

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  • Kyung Hwan Baik

Abstract

We study contests in which players compete by expending irreversible effort to win a prize, the prize is awarded to one of the players, the winner shares the prize with other players in his group, if any, and each group's sharing rule is unobservable to the other groups and the singletons, if any, when the players expend their effort. The number of groups, their sizes, and the number of singletons are exogenous in the first model, whereas they are endogenous in the second model. We show that group formation occurs if the number of players is four or smaller, but does not occur otherwise. We examine the effect of endogenous group formation on total effort level and the profitability of endogenous group formation. In each of the two models, comparing the outcomes of the case of unobservable sharing rules with those of the case of observable sharing rules, we show that the two cases yield quite different outcomes.

Suggested Citation

  • Kyung Hwan Baik, 2016. "Endogenous Group Formation in Contests: Unobservable Sharing Rules," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 400-419, April.
    • Handle: RePEc:bla:jemstr:v:25:y:2016:i:2:p:400-419
    DOI: 10.1111/jems.12150
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    References listed on IDEAS

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    1. Hausken, Kjell, 1995. "The dynamics of within-group and between-group interaction," Journal of Mathematical Economics, Elsevier, vol. 24(7), pages 655-687.
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    Cited by:

    1. Lu Dong & Lingbo Huang & Jaimie W. Lien & Jie Zheng, 2021. "How Alliances Form and Conflict Ensues," Discussion Papers 2021-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    2. Kyung Hwan Baik & Sang-Kee Kim, 2020. "Observable versus unobservable R&D investments in duopolies," Journal of Economics, Springer, vol. 130(1), pages 37-66, June.
    3. Pau Balart & Sabine Flamand & Orestis Troumpounis, 2016. "Strategic choice of sharing rules in collective contests," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(2), pages 239-262, February.
    4. Kyung Hwan Baik & Dongryul Lee, 2020. "Decisions of Duopoly Firms on Sharing Information on Their Delegation Contracts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(1), pages 145-165, August.
    5. Dhritiman Gupta, 2023. "Prize sharing rules in collective contests: when do social norms matter?," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 221-244, February.
    6. Dongryul Lee & Pilwon Kim, 2022. "Group formation in a dominance-seeking contest," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 58(1), pages 39-68, January.

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