Reach for the Stars: A Strategic Bidding Game

Lynne Pepall and Daniel Richards ()

Economica, 2001, vol. 68, issue 272, 489-504

Abstract: We examine two–sided competition in a duopoly market for differentiated products. Downstream, the two firms compete in prices. Upstream, they compete in bidding to hire talent input and there is one unique superstar. The outcome depends on the downstream effect of only one firm employing the superstar. When this intensifies downstream competition, both firms are worse off than they would be if no superstar talent were available. When the hiring of the superstar softens downstream competition, both firms benefit, but a ‘winner’s curse’ emerges in which the firm winning the superstar talent earns less profit than its rival.

Date: 2001
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