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Allocating Ideas: Horizontal Competition in Tournaments
Author(s) -
Ganuza JuanJosé,
Hauk Esther
Publication year - 2006
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2006.00117.x
Subject(s) - stylized fact , competition (biology) , horizontal and vertical , quality (philosophy) , microeconomics , computer science , industrial organization , operations research , economics , business , marketing , mathematics , ecology , philosophy , geometry , macroeconomics , epistemology , biology
We develop a stylized model of horizontal and vertical competition in tournaments with two competing firms. The sponsor cares not only about the quality of the design but also about the design location. A priori not even the sponsor knows his preferred design location, which is only discovered once he has seen the actual proposals. We show that the more efficient firm is more likely to be conservative when choosing the design location. Also, to get some differentiation in design locations, the cost difference between contestants can be neither too small nor too big. Therefore, if the sponsor mainly cares about the design location, participation in the tournaments by the two lowest‐cost contestants cannot be optimal for the sponsor.