Asymmetric endogenous prize contests

Damian S. Damianov, Shane Sanders, Anil Yildizparlak

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

We consider a two-player contest in which one contestant has a headstart advantage, but both can exert further effort. We allow the prize to depend on total performance in the contest and consider the respective cases in which efforts are productive and destructive of prize value. When the contest success function takes a logit form, and marginal cost is increasing in effort, we show that a Nash equilibrium exists and is unique both in productive and destructive endogenous prize contests. In equilibrium, the underdog expends more resources to win the prize, but still his probability of winning remains below that of the favorite. In a productive contest, the underdog behaves more aggressively and wins the prize more often in comparison to a fixed-value contest. Thus, the degree of competitive balance—defined as the level of uncertainty of the outcome—depends upon the (fixed or endogenous) prize nature of the contest.

Original languageEnglish (US)
Pages (from-to)435-453
Number of pages19
JournalTheory and Decision
Volume85
Issue number3-4
DOIs
StatePublished - Oct 1 2018

Keywords

  • Competitive balance
  • Endogenous prize contests
  • Productive and destructive effort

ASJC Scopus subject areas

  • Decision Sciences(all)
  • Developmental and Educational Psychology
  • Arts and Humanities (miscellaneous)
  • Applied Psychology
  • Social Sciences(all)
  • Economics, Econometrics and Finance(all)
  • Computer Science Applications

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