Economics at your fingertips  

Liquidity constraints and the formation of unbalanced contests

Martin Grossmann and Dieter Hottiger

International Journal of Industrial Organization, 2020, vol. 73, issue C

Abstract: We analyze the effects of future liquidity constraints on contestants’ investment in a dynamic contest model. Contestants invest in two consecutive contests to win a prize in each period. The loser of the first-period contest can be liquidity-constrained in the second period due to too little remaining wealth. The winner of the first contest can reinvest the prize in the second contest. We show that future liquidity constraints mainly affect the imbalance of the contest in the future but not today. Surprisingly, larger contest prizes decrease contestants’ future investments and amplify the imbalance of future contests. However, the contest organizer can reduce this imbalance by increasing the share of the prize money in the second contest.

Keywords: Dynamic contest; Liquidity constraint; Competitive balance (search for similar items in EconPapers)
JEL-codes: C72 C73 D43 D72 L13 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.ijindorg.2020.102658

Access Statistics for this article

International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

More articles in International Journal of Industrial Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2021-08-12
Handle: RePEc:eee:indorg:v:73:y:2020:i:c:s0167718720300813