The Role of Participation in Innovation Contests
52 Pages Posted: 28 Feb 2017 Last revised: 13 Jul 2020
Date Written: January 1, 2017
Many firms use external contests to obtain solutions to their innovation challenges. A central managerial concern for these contests is how to screen the population for only the most capable people when the capability of the population is not known. If the manager sets the bar too high, then the contest could fail to receive submissions and the innovation could be delayed or even fail leaving the firm to suffer the consequences. Alternatively, if the bar is set too low, then too many people enter, which leads to increased competition, a lack of effort, and diminished performance, again leaving the firm to suffer the consequences. We study a situation in which the size of a heterogeneous population of solvers is known but the fraction of this population that actually submits a solution to the contest is unknown. We derive the optimal contest design to maximize the performance of the best submission while accounting for the possibility that the contest fails and the associated consequences of such a failure. Our results provide an alternative rationale for why many contests offer multiple awards: firms want to avoid the negative consequences associated with a contest that fails to yield a solution. We also consider alternative levers available to the firm when facing uncertain participation. These include the establishment of performance thresholds and the decision to expand the potential solver population.
Keywords: new product development, innovation contests, partial participation, incentives for participation
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