Dueling contests and platform's coordinating role

Abstract

Crowdsourcing platforms typically take a passive approach, and let the competing firms freely design their own contests and allow every solver to self-select and join any of the concurrently running contests. We characterize the between-firm equilibrium in prize allocations and the induced participation-effort equilibrium among solvers. We find that the equilibrium prize allocation has fewer, but larger prizes compared to the benchmark where the contest organizer is a monopolist. Moreover, we identify a coordination inefficiency in the self-sorting equilibrium which negatively impacts the total and even the solver's welfare. This insight is expanded to identify normative platform policies, with the specific finding that both the solvers' and the total welfare is strictly improved by constraining the competing firms from freely choosing their prize budgets, and by nudging each solver toward specific contests by offering non-enforceable recommendations.

Keywords: crowdsourcing; nudges; incentives; multiple contests; endogenous participation