A Designer's Choice Between Single‐prize and Parallel Tournaments

Abstract

In this article, I theoretically and experimentally compare a designer's profits from two tournament designs. The first design is a standard winner‐take‐all tournament with a single prize. The second design features two winner‐take‐all (parallel) tournaments with different prizes where individuals choose which tournament to enter before competing. I develop a simple model that illustrates how the relative performances of these designs change as contestants' abilities differ. The theoretical model shows that the designer's profit is higher (lower) in the parallel tournament when contestants' abilities differ greatly (are similar). I complement these findings with experimental evidence. The experiments show that the parallel tournament is more profitable under high heterogeneity, whereas under low heterogeneity, the designer is better off with the single‐prize tournament. Furthermore, high‐ability agents under‐participate and low‐ability agents over‐participate in the high‐prize tournament relative to the theoretical prediction. (JEL C72, D82, J33, M51, M52)

Entry regulations and optimal prize allocation in parallel contests

“…Moreover, the introduction of a show-up fee can attract the low and high ability types, while repelling the middle types. Büyükboyacı (2016) compares the performance in a single-prize tournament with the performance in two parallel tournaments. In her paper, two heterogeneous contestants choose between two possible effort levels.…”

Exclusive or Not? An Experimental Analysis of Parallel Innovation Contests

“…Azmat and Möller (2009) consider two identical Tullock contests, and analyze the optimal award allocation to obtain the highest participation. Büyükboyacı (2016) compares the organizer profit of designing a single contest and dividing it into two contests with small and large awards, respectively. Not only is our research question different from these works, but also we consider a unique environment in innovation contests in an experimental setting.…”

College admissions with entrance exams: Centralized versus decentralized

“…There is a large literature on competing auctions and mechanisms; notable examples are Ellison et al (2004), Biais et al (2000), McAfee (1993), and more recently, Moldovanu et al (2008), Virág (2010), and Ovadia (2014. Two papers that are most related to our papers are DiPalantino and Vojnovic (2009) and Büyükboyacı (2016). DiPalantino and Vojnovic (2009) consider multiple contests where each contest gives a single prize and show the existence of a symmetric monotone equilibrium using the revenue equivalence theorem.…”

“…They are mostly interested in the participation rates among different contests and establish that in the large system limit (i.e., as the population gets large) the number of players that participate in a given contest class is a Poisson random variable. Büyükboyacı (2016), on the other hand, theoretically and experimentally compares the performance of one contest with a single prize and two parallel contests each with a single prize. In her model agents can be either a high-ability or a low-ability type.…”