Top Guns May Not Fire: Group Contests with Public-Good Prize and Best-shot Impact Function

*Subhasish Modak Chowdhury
Economics, University of East Anglia

Dongryul Lee
School of Technology Management, UNIST (Ulsan National Institute of Science and Technology

Roman Sheremeta
Argyros School of Business and Economics, Chapman University

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     Last modified: March 10, 2011
     Presentation date: 03/13/2011 12:00 PM in NH 1130, Session B
     (View Schedule)

Abstract
We analyze a group contest in which n groups compete to win a group-specific public good prize. Each group consists of different number of group members and each individual group member values the prize differently. Individual players choose their bids simultaneously and independently and a best-shot group impact function determines the group bid. The winner group is determined by a Tullock Contest Success Function. This structure reflects the features of competing research joint ventures, patent pools competing for industry standards, some sporting events such as Formula 1 or Tour de France, to name a few. We show the existence of multiple equilibria and fully characterize the set of equilibria of this contest. In any equilibrium only one player in each group bids positive. However, there are equilibria in which a highest valuation player completely free-rides on others by submitting a zero bid. We show the condition under which this can be avoided and discuss possible contest design issues.