Competitive balance when winning breeds winners
- PDF / 1,337,497 Bytes
- 22 Pages / 439.37 x 666.142 pts Page_size
- 80 Downloads / 170 Views
Competitive balance when winning breeds winners Derek J. Clark1 · Tore Nilssen2 Received: 5 September 2019 / Accepted: 19 August 2020 © The Author(s) 2020
Abstract In contest settings, heterogeneity between contestants generally leads to low effort provision, and many instruments have been suggested to restore competitive balance. We suggest that heterogeneity may evolve depending upon the outcome of previous contests. Restoring competitive balance in this setting is challenging, and we consider the choice faced by a principal who can distribute a prize fund over two consecutive all-pay auction contests. Contestants are heterogeneous in the sense that one of them has a head start in the first contest. The winner of contest one gains the stage prize and a net head start in contest two; the size of this net head start also varies between players. The head start of the early leader can be increased, neutralized or overturned. The principal aims to maximize total effort. We show how the potential head start that the initial underdog can gain is critical in determining expected efforts. When this parameter is small, the principal can do no better than running a single contest. When the initial underdog can catch up and surpass the first-contest favourite, there is scope to do better. Indeed, it is possible to completely neutralize the initial heterogeneity and capture all of the surplus from the players, inciting a level of expected effort equal to the prize value. Competitive balance is achieved by a judicious division of the prize budget.
Thanks to three referees and an Associate Editor of this journal for very useful comments. We are grateful for the hospitality extended by the Max Planck Institute of Tax Law and Public Finance in Munich, Germany, where much of the research for this paper was done. Comments from Malin Arve, Kai Konrad, Dan Kovenock, and Marco Serena have been invaluable. We would also like to thank participants at seminars at the APET Conference in Hue, Vietnam, the “Contests: Theory and Evidence” conference in Norwich, ASSET in Florence, and Université de Bordeaux for helpful comments. A previous version of this paper was “Beating the Matthew Effect: Head Starts and Catching Up in a Dynamic All-Pay Auction.” Errors are our own. * Derek J. Clark [email protected] Tore Nilssen [email protected] 1
School of Economics and Business, UiT - The Arctic University of Norway, 9037 Tromsø, Norway
2
Department of Economics, University of Oslo, Blindern, P.O. Box 1095, 0317 Oslo, Norway
13
Vol.:(0123456789)
D. J. Clark, T. Nilssen
1 Introduction Competitive situations are often characterized by the fact that winning breeds winners, making success self-fulfilling. When competition is modelled as a contest, it has long been established that heterogeneity in the participants may lead to outcomes involving low effort provision.1 Adding to this the fact that winners may evolve and gain further advantage in subsequent contests can exacerbate this problem. How then should an incentive scheme be
Data Loading...
