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Fixed-Prize Tournaments versus First-Price Auctions in Innovation Contests

  • Anja Schöttner

This paper analyzes a procurement setting with two identical firms and stochastic innovations. In contrast to the previous literature, I show that a procurer who cannot charge entry fees may prefer a fixed-prize tournament to a first-price auction since holding an auction may leave higher rents to firms when the innovation technology is subject to large random factors.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2005-041.pdf
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2005-041.

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Length: 22 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2005-041
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  1. Leandro Arozamena & Estelle Cantillon, 2004. "Investment Incentives in Procurement Auctions," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 1-18, 01.
  2. Grund, Christian & Sliwka, Dirk, 2002. "Envy and Compassion in Tournaments," IZA Discussion Papers 647, Institute for the Study of Labor (IZA).
  3. Fullerton, Richard, et al, 1999. "An Experimental Investigation of Research Tournaments," Economic Inquiry, Western Economic Association International, vol. 37(4), pages 624-36, October.
  4. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  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. O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 27-56, January.
  7. 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.
  8. Yeon-Koo Che & Ian Gale, 2000. "Optimal Design of Research Contests," Econometric Society World Congress 2000 Contributed Papers 1784, Econometric Society.
  9. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  10. 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.
  11. An, Mark Yuying, 1995. "Logconcavity versus Logconvexity: A Complete Characterization," Working Papers 95-03, Duke University, Department of Economics.
  12. Lebrun, Bernard, 1998. "Comparative Statics in First Price Auctions," Games and Economic Behavior, Elsevier, vol. 25(1), pages 97-110, October.
  13. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
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