Allocating ideas: Horizontal competition in tournaments

We develop a stylized model of horizontal and vertical competition intournaments with two competing firms. The sponsor cares about the qualityof the design but also about the design location. A priori not even thesponsor knows his preferred design location, which is only discoveredonce he has seen the actual proposals. We show that the more efficientfirm is more likely to be conservative when choosing the design location.Also, to get some differentiation in design locations, the cost differencebetween contestants can neither be too small nor too big. Therefore, ifthe sponsor mainly cares about the design location, participation in thetournaments by the two lowest cost contestants cannot be optimal for thesponsor.

Competition amongst contests

This article analyses the allocation of prizes in contests. While existing models consider a single contest with an exogenously given set of players, in our model several contests compete for participants. As a consequence, prizes not only induce incentive effects but also participation effects. We show that contests that aim to maximize players aggregate effort will award their entire prize budget to the winner. In contrast, multiple prizes will be awarded in contests that aim to maximize participation and the share of the prize budget awarded to the winner increases in the contests randomness. We also provide empirical evidence for this relationship using data from professional road running. In addition, we show that prize structures might be used to screen between players of differing ability.