Innovation Contest Design with Product and Supplier Diversity

40 Pages Posted: 27 Mar 2023 Last revised: 19 Oct 2023

See all articles by Konstantinos Protopappas

Konstantinos Protopappas

University of Innsbruck - Department of Public Finance

David Rietzke

Lancaster University - Department of Economics

Date Written: September 2023

Abstract

We study the optimal design of an innovation contest wherein a buyer wants to induce product variety and faces a moral hazard problem. The suppliers have different areas of expertise and may differ in their flexibility to adopt approaches outside their specialties. When the suppliers are equally flexible, the buyer-optimal fixed-prize contest implements the first best. When the suppliers differ in their flexibility, the optimal fixed-prize contest induces product variety, but there is a distortion from the first best due to the buyer's limited commitment power. In either case, an auction with entry fees is an optimal contest and implements the first best.

Keywords: innovation contests, product diversity, procurement

JEL Classification: D82, L22, O31

Suggested Citation

Protopappas, Konstantinos and Rietzke, David, Innovation Contest Design with Product and Supplier Diversity (September 2023). Available at SSRN: https://ssrn.com/abstract=4391919 or http://dx.doi.org/10.2139/ssrn.4391919

Konstantinos Protopappas

University of Innsbruck - Department of Public Finance ( email )

Universitätsstraße 15
Innsbruck, 6020
Austria

HOME PAGE: http://https://www.uibk.ac.at/publicfinance/team/mitarbeiter/konstantinos-protopappas.html.en

David Rietzke (Contact Author)

Lancaster University - Department of Economics ( email )

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