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Creating balance in dynamic competitions

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  • Clark, Derek J.
  • Nilssen, Tore

Abstract

We consider incentives for organizing competitions in multiple rounds, focusing on situations where there is heterogeneity among the contestants ex ante, which discourages effort in a single contest. Heterogeneity evolves across rounds depending upon the outcomes of previous rounds. We present conditions under which balance in such a competition can be created, by determining the number of rounds and dividing the prize fund carefully across them, so that full rent dissipation entails. In the model, each round is an all-pay auction where contestants differ in their abilities to gain a momentum from winning. We also discuss the case when negative prizes are feasible, demonstrating that this strengthens the full dissipation result; and we consider a case where the size of the winner’s momentum is related to the size of the prize attained, showing that the stronger this linkage, the less of the prize is awarded early on.

Suggested Citation

  • Clark, Derek J. & Nilssen, Tore, 2020. "Creating balance in dynamic competitions," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:indorg:v:69:y:2020:i:c:s0167718719301067
    DOI: 10.1016/j.ijindorg.2019.102578
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    Cited by:

    1. Derek J. Clark & Tore Nilssen, 2021. "Competitive balance when winning breeds winners," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 56(2), pages 363-384, February.
    2. Derek J. Clark & Tore Nilssen, 2022. "Fatter or fitter? On rewarding and training in a contest," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 101-120, January.
    3. Subhasish M. Chowdhury & Patricia Esteve‐González & Anwesha Mukherjee, 2023. "Heterogeneity, leveling the playing field, and affirmative action in contests," Southern Economic Journal, John Wiley & Sons, vol. 89(3), pages 924-974, January.
    4. Lauber, Arne & March, Christoph & Sahm, Marco, 2023. "Optimal and fair prizing in sequential round-robin tournaments: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 141(C), pages 30-51.
    5. Derek J. Clark & Tore Nilssen & Jan Yngve Sand, 2020. "Gaining advantage by winning contests," Review of Economic Design, Springer;Society for Economic Design, vol. 24(1), pages 23-38, June.

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    More about this item

    Keywords

    Balanced competition; All-pay auction; Momentum; Multiple rounds;
    All these keywords.

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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