Competitive Balance: Information Disclosure and Discrimination in an Asymmetric Contest
31 Pages Posted: 27 Mar 2020 Last revised: 6 May 2020
Date Written: May 6, 2020
We study a design problem for an effort-maximizing principal in a two-player asymmetric contest. We consider two dimensions of asymmetry. Players have different skill levels and an information gap exists, as only one player knows the skill difference. The principal has two policy instruments to redress the lack of competitive balance due to asymmetry; she can commit to an information-revealing mechanism, and she can discriminate one of the players by biasing his effort. We characterize the optimal level of discrimination to achieve competitive balance, showing how this is in turn inextricably linked to the choice of information revelation.
Keywords: Asymmetric Contest, Information Design, Discrimination
JEL Classification: D02, D72, D82
Suggested Citation: Suggested Citation