Contest design and optimal endogenous entry

Qiang Fu and Jingfeng Lu

MPRA Paper from University Library of Munich, Germany

Abstract: This paper derives the effort-maximizing contest rule and the optimal endogenous entry in a context where potential participants bear fixed entry costs. The organizer is allowed to design the contest under a fixed budget with two strategic instruments: he sets the value of the prize purse, and arranges a monetary transfer (entry subsidy or fee) for each participating contestant. In other words, the budget can either be used to subsidize participation or an entry fee can be charged to fund the prize purse. The results show that the optimally designed contest attracts exactly two participating contestants in its unique subgame perfect equilibrium (when there is a positive fixed entry cost) and extracts all the surplus from participating contestants. The study also shows that the direction and amount of the monetary transfer depend on the magnitude of the entry cost: the contest organizer subsidizes entry when contestants bear substantial entry costs, but charges an entry fee to fund the prize purse whenever the entry cost is sufficiently low.

Keywords: Contest; Endogenous Entry; Entry Cost; Subsidy; Entry Fee (search for similar items in EconPapers)
JEL-codes: C72 D7 (search for similar items in EconPapers)
Date: 2006-11
New Economics Papers: this item is included in nep-com and nep-ind
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https://mpra.ub.uni-muenchen.de/945/1/MPRA_paper_945.pdf original version (application/pdf)

Related works:
Journal Article: CONTEST DESIGN AND OPTIMAL ENDOGENOUS ENTRY (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:945

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