Momentum and Heterogeneity in Contests

68 Pages Posted: 30 Jun 2020

See all articles by Stefano Barbieri

Stefano Barbieri

Tulane University - Department of Economics

Marco Serena

Max Planck Institute for Tax Law and Public Finance

Date Written: June 25, 2020

Abstract

In sequential contests between ex-ante symmetric players, the outcome of early battles creates an asymmetry in players' incentives to expend resources, which undermines future expenditures. This dynamic force is absent in simultaneous contests, and consequently expenditures in sequential contests are smaller than in simultaneous ones. But if players are not ex-ante symmetric, it is a priori not clear what happens to players' incentives to expend resources in sequential contests. We find that the answer depends on the nature of the heterogeneity. If a player is stronger in every battle, then expenditures in sequential contests are still smaller than in simultaneous ones. However, if players' advantages are allowed to vary across battles, then a reversal of the result can be obtained, and expenditures in sequential contests are greater than in simultaneous ones. We discuss applications, intuition and extensions of our results.

Keywords: C72, D72, D74, D82

JEL Classification: contests, momentum effect, temporal structures

Suggested Citation

Barbieri, Stefano and Serena, Marco, Momentum and Heterogeneity in Contests (June 25, 2020). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2020-07, Available at SSRN: https://ssrn.com/abstract=3635360

Stefano Barbieri

Tulane University - Department of Economics ( email )

New Orleans, LA 70118
United States

Marco Serena (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

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