Auctioning Entry into Tournaments

Abstract

A research tournament model with heterogeneous contestants is presented. For a large class of contests the optimal number of contestants is two. This insight makes designing the tournament easier and highlights the importance of selecting highly qualified contestants. While customary uniform-price and discriminatory-price auctions are intuitively appealing mechanisms for solving this adverse selection problem, in practice they generally will not be efficient mechanisms for selecting contestants. Instead, we propose an alternative auction format that is equally simple to implement and efficiently selects the most qualified contestants to compete, regardless of the form of contestant heterogeneity.

JEL Classification: D81, D82