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CONTEST DESIGN AND OPTIMAL ENDOGENOUS ENTRY
Author(s) -
FU QIANG,
LU JINGFENG
Publication year - 2010
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2008.00135.x
Subject(s) - contest , economics , microeconomics , subsidy , context (archaeology) , subgame perfect equilibrium , value (mathematics) , free entry , game theory , computer science , market economy , paleontology , machine learning , political science , law , biology
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: the value of the prize purse and a monetary transfer (entry subsidy/fee) to each participating contestant. The results show that the optimally designed contest attracts exactly two participating contestants in its unique subgame perfect equilibrium and extracts all the surplus from participating contestants. The direction (subsidy or fee) and amount of the monetary transfer depend on the magnitude of the entry cost. ( JEL C7, D7)