Second, but not Last: Competition with Positive Spillovers

Abstract

This paper extends the traditional rent-seeking model to consider contests in which the effects of the contestants efforts are externally unproductive (i.e., redistributive) but internally productive (i.e., with positive spillover effects on other contestants). Our results show that when players act sequentially, the presence of positive spillovers on other contestants may reduce, or even reverse, the first-mover’s advantage. A second-mover advantage is very likely to arise. Notably, in contests with multiple players, the second-mover advantage does not unravel into a last-mover advantage. Players want to be second, but not last. The comparative statics analysis shows how the strength of positive spillovers affects contestants’ equilibrium expenditures and payoffs, and aggregate rent dissipation.

Keywords: competition, sequential rent seeking, spillover effects, second-mover advantage

JEL Classification: C72, D72