The Effects of Increasing Competition and Uncertainty on Incentives and Extreme-Value Outcomes in Innovation Contests

49 Pages Posted: 18 Jan 2010 Last revised: 26 Nov 2010

See all articles by Kevin Boudreau

Kevin Boudreau

Northeastern University; National Bureau of Economic Research (NBER)

Nicola Lacetera

University of Toronto - Strategic Management; University of Toronto at Mississauga - Department of Management; National Bureau of Economic Research (NBER)

Karim R. Lakhani

Harvard Business School - Technology and Operations Management Group; Harvard Institute for Quantitative Social Science; Harvard University - Berkman Klein Center for Internet & Society

Date Written: November 24, 2010

Abstract

Contests are a historically important and increasingly popular mechanism for encouraging innovation. A central concern in designing innovation contests is how many competitors to admit. Using a unique data set of 9,661 software contests, we provide evidence of two coexisting and opposing forces that operate when the number of competitors increases. Greater rivalry reduces the incentives to expend effort by individual solvers across competitors of all skill levels, while at the same time, increases the likelihood that at least one competitor will find an extreme-value solution. We show that the effort-reducing effect of greater rivalry dominates for less uncertain problems whereas the effect on the extreme value prevails for more uncertain problems. Adding competitors thus systematically increases overall contest performance for high-uncertainty problems. We also find that higher uncertainty reduces the negative effect of added competitors on incentives. We explore the implications of our findings for the theory and practice of innovation contests.

Keywords: innovation contests, competition, innovation, problem-solving, search, complexity, distributed innovation, platforms

JEL Classification: L1, L86, 03

Suggested Citation

Boudreau, Kevin and Lacetera, Nicola and Lakhani, Karim R., The Effects of Increasing Competition and Uncertainty on Incentives and Extreme-Value Outcomes in Innovation Contests (November 24, 2010). Harvard Business School Technology & Operations Mgt. Unit Working Paper; Berkman Center Research Publication No. 2008-6. Available at SSRN: https://ssrn.com/abstract=1531368 or http://dx.doi.org/10.2139/ssrn.1531368

Kevin Boudreau (Contact Author)

Northeastern University ( email )

805 Columbus Ave, Interdisciplinary Sci & Eng Bldg
Huntington Ave
Boston, MA 02115
United States

HOME PAGE: http://www.kevinboudreau.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nicola Lacetera

University of Toronto - Strategic Management ( email )

Canada

University of Toronto at Mississauga - Department of Management

Canada

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Karim R. Lakhani

Harvard Business School - Technology and Operations Management Group ( email )

Boston, MA 02163
United States
617-495-6741 (Phone)

Harvard Institute for Quantitative Social Science ( email )

1737 Cambridge St.
Cambridge, MA 02138
United States

Harvard University - Berkman Klein Center for Internet & Society ( email )

Harvard Law School
23 Everett, 2nd Floor
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
431
Abstract Views
2,744
rank
67,662
PlumX Metrics