Prizes and Lemons: Procurement of Innovation Under Imperfect Commitment
21 Pages Posted: 29 Aug 2011 Last revised: 29 Oct 2017
Date Written: August 14, 2011
Abstract
The literature on R&D contests implicitly assumes that contestants submit their innovation regardless of its value. This ignores a potential adverse selection problem. The present article analyzes the procurement of innovations when the procurer cannot commit himself to never bargain with innovators who bypass the contest. We compare fixed-prize tournaments with and without entry fees, and optimal scoring auctions with and without minimum score requirement. Our main result is that preventing bypass is more costly in the optimal auction, and the optimal fixed-prize tournament is more profitable than the optimal auction.
Keywords: innovation, contests, tournaments, auctions, bargaining, adverse selection
JEL Classification: C70, D44, D89, L12, O32
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby's and Christie's
By Orley Ashenfelter and Kathryn Graddy
-
Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby's and Christie's
By Orley Ashenfelter and Kathryn Graddy
-
Auction Hosting Site Pricing and Market Equilibrium with Endogenous Bidder and Seller Participation
By George Deltas and Thomas D. Jeitschko
-
How to Win Twice at an Auction. On the Incidence of Commissions in Auction Markets
By Victor A. Ginsburgh, Patrick Legros, ...
-
How to Win Twice at an Auction: On the Incidence of Commissions in Auction Markets
By Victor A. Ginsburgh, Patrick Legros, ...
-
Why Do Sellers at Auctions Bid for Their Own Items? Theory and Evidence
-
Reservation Prices and Pre-Auction Estimates: A Study in Abstract Art
By Calin Valsan and Robert Sproule
-
Fixed-Prize Tournaments Versus First-Price Auctions in Innovation Contests
-
The Effects of Judically Imposed Restriction of Settlements to Compensatory Damages