The Role of Participation in Innovation Contests

45 Pages Posted: 28 Feb 2017 Last revised: 12 Jul 2018

Konstantinos I. Stouras

University of Virginia - Darden School of Business

Jeremy Hutchison-Krupat

University of Cambridge - Judge Business School

Raul O. Chao

University of Virginia - Darden School of Business

Date Written: October 1, 2017

Abstract

Participation (i.e. committing resources) in an innovation contest can not be mandated or enforced, which calls for incorporating participation, in addition to effort incentives, as part of contest design. The result is a model of innovation contests with endogenous entry and participation uncertainty. Unlike contests with guaranteed entry, we show that a firm has to split its available budget into multiple rewards to attract optimal participation and effort from outside solvers. We demonstrate that, the expected highest output and the expected total output of the participants are both non-monotone in solver population when solver entry is endogenous, whereas they are non-monotone and strictly increasing in population respectively when all solvers participate with certainty. The expected highest output can be further improved if the firm announces an output reserve, i.e. a minimum acceptable output requirement for entry. We show that the optimal output reserve in innovation contests with endogenous entry is larger than the optimal output reserve in contests with guaranteed entry. Our results are robust under several modeling assumptions.

Keywords: new product development, innovation contests with stochastic and endogenous participation, incentives for participation

Suggested Citation

Stouras, Konstantinos I. and Hutchison-Krupat, Jeremy and Chao, Raul O., The Role of Participation in Innovation Contests (October 1, 2017). Available at SSRN: https://ssrn.com/abstract=2924224 or http://dx.doi.org/10.2139/ssrn.2924224

Konstantinos I. Stouras (Contact Author)

University of Virginia - Darden School of Business ( email )

100 Darden Boulevard
Charlottesville, VA 22903
United States

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

Jeremy Hutchison-Krupat

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Raul O. Chao

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-982-2681 (Phone)

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