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Information Disclosure in Contests with Endogenous Entry: An Experiment

Luke Boosey, Philip Brookins () and Dmitry Ryvkin ()

Management Science, 2020, vol. 66, issue 11, 5128-5150

Abstract: We use a laboratory experiment to study the effects of disclosing the number of active participants in contests with endogenous entry. At the first stage, potential participants decide whether to enter competition, and at the second stage, entrants choose their investments. In a 2 × 2 design, we manipulate the size of the outside option, ω , and whether the number of entrants is disclosed between the stages. Theory predicts more entry for lower ω and the levels of entry and aggregate investment to be independent of disclosure in all cases. We find empirical entry frequencies decreasing with ω . For aggregate investment, we find no effect of disclosure when ω is low but a strong positive effect of disclosure when ω is high. The difference is driven by substantial overinvestment in contests with a small, publicly known number of players contrasted by more restrained investment in contests in which the number of players is uncertain and may be small. The behavior under disclosure is explained by a combination of joy of winning and entry regret.

Keywords: contest; endogenous entry; information disclosure; experiment (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:inm:ormnsc:v:66:y:2020:i:11:p:5128-5150