The Role of Participation in Innovation Contests
45 Pages Posted: 28 Feb 2017 Last revised: 12 May 2019
Date Written: May 2019
An important managerial concern when innovation is carried out by outside solvers is the extent to which those solvers choose to participate, and if so, the effort level they exert to solve a firm's problem. At the same time, neither the solvers nor the firm can be certain about the number of participants when they make their respective decisions. Participation uncertainty implies that a contest may attract insufficient submissions, or even none, in which case the contest is canceled at a cost. We derive the optimal contest design that maximizes the best submission net the contest cancellation cost. Further, we analyze the effect of imposing a performance threshold to regulate solver participation and submission quality. Finally, we show that growing solver population does not always improve the best submitted solution, even in the absence of any costs associated with such a population expansion.
Keywords: new product development, innovation contests with stochastic and endogenous participation, incentives for participation
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