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Open AccessEditorial

Advances in the Theory and Applications of Contests and Tournaments: Introduction to the Special Issue

by Theofanis Tsoulouhas

Games 2023, 14(2), 27; https://doi.org/10.3390/g14020027 - 17 Mar 2023

Viewed by 2216

The theory of relative performance evaluation has come a long way since its inception, so much so that it is now a major research branch in economic theory [...] Full article

(This article belongs to the Special Issue Advances in the Theory and Applications of Contests and Tournaments)

24 pages, 404 KB

Open AccessEditor’s ChoiceArticle

Global Innovation Contests

by Elias Dinopoulos, Constantinos Syropoulos and Theofanis Tsoulouhas

Games 2023, 14(1), 18; https://doi.org/10.3390/g14010018 - 20 Feb 2023

Cited by 4 | Viewed by 3347

Abstract

The primary objective of this paper is to develop a two-country, dynamic, general equilibrium model with innovation contests to formally analyze the impact of globalization on the skill premium and fully-endogenous growth. Higher quality products are endogenously discovered through stochastic and sequential global [...] Read more.

The primary objective of this paper is to develop a two-country, dynamic, general equilibrium model with innovation contests to formally analyze the impact of globalization on the skill premium and fully-endogenous growth. Higher quality products are endogenously discovered through stochastic and sequential global innovation contests in which challengers devote resources to R&D, while technology leaders undertake rent-protection activities (RPAs) to prolong the expected duration of their temporary monopoly power by hindering the R&D effort of challengers. The model generates intra-sectoral trade, multinationals, and international outsourcing of investment services. Globalization, captured by a move from autarky to the integrated-world equilibrium, leads to convergence of wages and growth rates. Globalization and long-run growth are either substitutes or complements depending on a country’s relative skill abundance and the ranking of skill intensities between RPAs and R&D services. Trade openness between two countries that possess identical relative skill endowments but differ in size does not affect either country’s long-run growth. Full article

(This article belongs to the Special Issue Advances in the Theory and Applications of Contests and Tournaments)

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21 pages, 364 KB

Open AccessArticle

The Impact of Organizer Market Structure on Participant Entry Behavior in a Multi-Tournament Environment

by Timothy Mathews, Soiliou Daw Namoro and James W. Boudreau

Games 2023, 14(1), 4; https://doi.org/10.3390/g14010004 - 3 Jan 2023

Cited by 1 | Viewed by 2949

Abstract

A multi-tournament environment is analyzed, focusing on the impact of organizer market structure on agent entry behavior. Two high ability agents first decide which tournament to enter (with fields then filled by low ability agents). If the marginal benefit of high ability agents [...] Read more.

A multi-tournament environment is analyzed, focusing on the impact of organizer market structure on agent entry behavior. Two high ability agents first decide which tournament to enter (with fields then filled by low ability agents). If the marginal benefit of high ability agents in an event is weakly increasing, a monopsonist organizer sets prizes so that the high ability agents enter the same event. If this marginal benefit is diminishing, a monopsonist organizer will either: always set prizes for which the high ability agents enter different events; or set prizes for which the high ability agents enter different events if and only if the difference in ability between the high ability and low ability agents is sufficiently small. Sequentially competing organizers set prizes for which both high ability agents enter the same event if and only if the marginal benefit of having two high ability agents in one event is relatively large. For competing organizers there may be either a first or second mover advantage. Finally, Social Welfare may be higher or lower with competing organizers, implying greater organizer competition does not necessarily increase Social Welfare. Parallels are noted throughout to the labor market for professional golfers both over years when the PGA TOUR was essentially a monopsonist and more recently when LIV Golf emerged as a competitor. Full article

(This article belongs to the Special Issue Advances in the Theory and Applications of Contests and Tournaments)

11 pages, 303 KB

Open AccessEditor’s ChoiceArticle

Rent Dissipation in Simple Tullock Contests

by Alex Dickson, Ian A. MacKenzie and Petros G. Sekeris

Games 2022, 13(6), 83; https://doi.org/10.3390/g13060083 - 13 Dec 2022

Cited by 5 | Viewed by 4260

Abstract

We investigate observed rent dissipation—the ratio of the total costs of rent seeking to the monetary value of the rent—in winner-take-all and share contests, where preferences are more general than usually assumed in the literature. With concave valuation of the rent, we find [...] Read more.

We investigate observed rent dissipation—the ratio of the total costs of rent seeking to the monetary value of the rent—in winner-take-all and share contests, where preferences are more general than usually assumed in the literature. With concave valuation of the rent, we find that contests can exhibit observed over-dissipation if the contested rent is below a threshold and yet observed under-dissipation with large rents: the nature of preferences implies contestants are relatively effortful in contesting small rents. Considering more general preferences in contests thus allows us to reconcile the Tullock paradox—where rent-seeking levels are relatively small despite the contested rent being sizeable—with observed over-dissipation of rents in experimental settings, where contested rents are arguably small. Full article

(This article belongs to the Special Issue Advances in the Theory and Applications of Contests and Tournaments)

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20 pages, 1235 KB

Open AccessArticle

Do Output-Dependent Prizes Alleviate the Sabotage Problem in Tournaments?

by Thomas Glökler, Kerstin Pull and Manfred Stadler

Games 2022, 13(5), 65; https://doi.org/10.3390/g13050065 - 30 Sep 2022

Cited by 1 | Viewed by 2713

Abstract

We investigate whether tournament prizes that depend on joint output (“variable prize tournaments”) can alleviate the sabotage problem which is otherwise inherent in tournament structures. In a game-theoretical model with three contestants, we compare fixed-prize tournaments with tournaments where prizes depend on contestants’ [...] Read more.

We investigate whether tournament prizes that depend on joint output (“variable prize tournaments”) can alleviate the sabotage problem which is otherwise inherent in tournament structures. In a game-theoretical model with three contestants, we compare fixed-prize tournaments with tournaments where prizes depend on contestants’ joint output. Our analysis suggests that the incentives to sabotage in a fixed-prize tournament may be counteracted in a variable-prize tournament such that contestants no longer sabotage, but help one another. We empirically test the implications of our model with the help of a classroom experiment where we compare participants’ choices in a fixed-prize treatment (

F P

) with those of a variable-prize treatment (

V P

) in a between-subjects design. Given our parametrization, we expect efforts to be identical in both treatments, and we expect sabotage in the

F P

treatment and no sabotage in the

V P

treatment. In accordance with the model, we find that participants in the fixed-prize tournament sabotage one another, whereas participants in the variable-prize tournament help one another. At the same time, participants’ effort levels do not vary between the two treatments. Full article

(This article belongs to the Special Issue Advances in the Theory and Applications of Contests and Tournaments)

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20 pages, 323 KB

Open AccessEditor’s ChoiceArticle

Assortative Matching by Lottery Contests

by Chen Cohen, Ishay Rabi and Aner Sela

Games 2022, 13(5), 64; https://doi.org/10.3390/g13050064 - 29 Sep 2022

Cited by 1 | Viewed by 2270

Abstract

We study two-sided matching contests with two sets, A and B, each of which includes a finite number of heterogeneous agents with commonly known types. The agents in each set compete in a lottery (Tullock) contest, and then are assortatively matched, namely, [...] Read more.

We study two-sided matching contests with two sets, A and B, each of which includes a finite number of heterogeneous agents with commonly known types. The agents in each set compete in a lottery (Tullock) contest, and then are assortatively matched, namely, the winner of set A is matched with the winner of set B and so on until all the agents in the set with the smaller number of agents are matched. Each agent has a match value that depends on their own type and the type of their match. We assume that the agents’ efforts do not affect their match values and that they have a positive effect on welfare. Therefore, an interior equilibrium in which at least some of the agents are active is welfare superior to a corner equilibrium in which the agents choose to be non-active. We analyze the conditions under which there exists a (partial) interior equilibrium where at least some of the agents compete against each other and exert positive efforts. Full article

(This article belongs to the Special Issue Advances in the Theory and Applications of Contests and Tournaments)

14 pages, 297 KB

Open AccessArticle

Informational Hold Up and Intermediaries

by Naomi Utgoff

Games 2022, 13(5), 63; https://doi.org/10.3390/g13050063 - 29 Sep 2022

Cited by 1 | Viewed by 1998

Abstract

Why do some incomplete information markets feature intermediaries while others do not? I study the allocation of two goods in an incomplete information setting with a single principal, multiple agents with unit demand, and interdependent valuations. I construct a novel dynamic mechanism implemented [...] Read more.

Why do some incomplete information markets feature intermediaries while others do not? I study the allocation of two goods in an incomplete information setting with a single principal, multiple agents with unit demand, and interdependent valuations. I construct a novel dynamic mechanism implemented by a principal who faces a set of intermediaries, each of whom represents an ex ante identical set of agents. This mechanism has a unique (up to permutation) weak perfect Bayesian equilibrium. The dynamic mechanism is inefficient with positive probability. Nevertheless, under mild conditions the agents are ex ante better off under the dynamic mechanism relative to a Vickrey-like auction because the intermediaries are more able to exploit information asymmetries in the dynamic mechanism than agents are able to exploit information asymmetries in the Vickrey-like auction. Finally, I show that in large markets the dynamic mechanism and Vickrey-like auction have the same expected total surplus. The comparison between the two mechanisms gives a stylized intuition for the hierarchical structure of larger markets and institutions. Full article

(This article belongs to the Section Market Design and Auctions)

8 pages, 220 KB

Open AccessArticle

Call Auctions with Contingent Orders

by Isa E. Hafalir and Serkan Imisiker

Games 2022, 13(5), 61; https://doi.org/10.3390/g13050061 - 13 Sep 2022

Viewed by 2864

Abstract

We introduce a new mechanism for call auctions which are widely used in stock exchanges. Our unique design incorporates contingent claims (buy stock A, if selling stock B) into the price discovery process. With our proposed mechanism, we show that higher liquidity during [...] Read more.

We introduce a new mechanism for call auctions which are widely used in stock exchanges. Our unique design incorporates contingent claims (buy stock A, if selling stock B) into the price discovery process. With our proposed mechanism, we show that higher liquidity during the call auctions is achieved, as well as lower volatility after the call auctions. Moreover, we show that current call auctions and the proposed mechanism have similar incentive properties. Hence, we argue that the proposed mechanism would be an improvement over the existing opening auction rules at stock exchanges. Full article

(This article belongs to the Section Market Design and Auctions)

12 pages, 321 KB

Open AccessEditor’s ChoiceArticle

Level-k Models and Overspending in Contests

by Malin Arve and Marco Serena

Games 2022, 13(3), 45; https://doi.org/10.3390/g13030045 - 10 Jun 2022

Cited by 2 | Viewed by 3204

Abstract

The experimental evidence on contests often reports overspending of contest participants compared to the theoretical Nash equilibrium outcome. We show that a standard level-k model may rationalize overspending in contests. This result complements the existing literature on overspending in contests, and it [...] Read more.

The experimental evidence on contests often reports overspending of contest participants compared to the theoretical Nash equilibrium outcome. We show that a standard level-k model may rationalize overspending in contests. This result complements the existing literature on overspending in contests, and it bridges an open gap between the contest and auction literature. In fact, the literature on auctions often runs parallel to that on contests.Overbidding in auctions has also been documented empirically, and it has been shown that, in private-value auctions, such overbidding can be rationalized by level-k reasoning. We bridge the existing gap between the auction and contest literature by showing that overbidding may also be true in a theoretical contest environment with level-k reasoning. Full article

(This article belongs to the Special Issue Advances in the Theory and Applications of Contests and Tournaments)

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6 pages, 270 KB

Open AccessArticle

Optimal Accuracy of Unbiased Tullock Contests with Two Heterogeneous Players

by Marco Sahm

Games 2022, 13(2), 24; https://doi.org/10.3390/g13020024 - 25 Mar 2022

Cited by 4 | Viewed by 3583

Abstract

I characterize the optimal accuracy level r of an unbiased Tullock contest between two players with heterogeneous prize valuations. The designer maximizes the winning probability of the strong player or the winner’s expected valuation by choosing a contest with an all-pay auction equilibrium [...] Read more.

I characterize the optimal accuracy level r of an unbiased Tullock contest between two players with heterogeneous prize valuations. The designer maximizes the winning probability of the strong player or the winner’s expected valuation by choosing a contest with an all-pay auction equilibrium (

r \geq 2

). By contrast, if she aims at maximizing the expected aggregate effort or the winner’s expected effort, she will choose a contest with a pure-strategy equilibrium, and the optimal accuracy level

r < 2

decreases in the players’ heterogeneity. Finally, a contest designer who faces a tradeoff between selection quality and minimum (maximum) effort will never choose a contest with a semi-mixed equilibrium. Full article

(This article belongs to the Special Issue Advances in the Theory and Applications of Contests and Tournaments)

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