Incentivizing variety in innovation contests with specialized suppliers

Konstantinos Protopappas and David Rietzke

Games and Economic Behavior, 2025, vol. 153, issue C, 586-621

Abstract: We study the optimal design of an innovation contest where a buyer seeks product variety and faces a moral hazard problem. The suppliers are specialized and may differ in their flexibility to adopt approaches outside their areas of expertise. If the specializations are sufficiently different and suppliers are otherwise symmetric, the buyer attains the first-best with a fixed-prize contest (FPC). If one supplier is inherently advantaged or the specializations are sufficiently close, the first-best is unattainable with an FPC. In all cases, an auction is an optimal contest and implements the first-best, provided the buyer can discriminate within the contest; if not, the buyer may prefer an FPC.

Keywords: Innovation contests; Product diversity; Procurement; Moral hazard (search for similar items in EconPapers)
JEL-codes: D82 L22 O31 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:153:y:2025:i:c:p:586-621

DOI: 10.1016/j.geb.2025.08.003

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