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Contests with entry fees: theory and evidence

Author

Listed:
  • John Duffy

    (University of California, Irvine)

  • Alexander Matros

    (University of South Carolina and Lancaster University Management School)

  • Zehra Valencia

    (Health Care Cost Institute)

Abstract

We provide some theory and experimental evidence on contests with entry fees. In our setup, players must simultaneously decide whether or not to pay a fee to enter a contest and the amount they wish to bid should they choose to enter the contest. In a general n-bidder game, we show that the addition of contest entry fees increases the contest designer’s expected revenue and that there is a unique revenue maximizing entry fee. In an experimental test of this theory we vary both the entry fee and the number of bidders. We find over-bidding for all entry fees and bidder group sizes, n. We also find under-participation in the contest for low entry fees and over-participation for higher entry fees. In the case of 3 bidders, the revenue maximizing entry fee for the contest designer is found to be significantly greater than the theoretically optimal entry fee. We offer some possible explanations for these departures from theoretical predictions.

Suggested Citation

  • John Duffy & Alexander Matros & Zehra Valencia, 2023. "Contests with entry fees: theory and evidence," Review of Economic Design, Springer;Society for Economic Design, vol. 27(4), pages 725-761, December.
    • Handle: RePEc:spr:reecde:v:27:y:2023:i:4:d:10.1007_s10058-022-00318-2
    DOI: 10.1007/s10058-022-00318-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Contests; Entry fees; Experimental economics;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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