Winner-Take-All or Multiple Prizes? The Role of Idea Diversity in Innovation Contests

32 Pages Posted: 4 Mar 2024

See all articles by Zhuoqiong Chen

Zhuoqiong Chen

Harbin Institute of Technology - Shenzhen Graduate School

Yangguang Huang

Hong Kong University of Science & Technology (HKUST)

Bin Liu

The Chinese University of Hong Kong, Shenzhen

Abstract

Contests are widely used in the procurement of innovative products.  Our study of hundreds of real procurement contests reveals that the majority of them offer multiple prizes, particularly for building projects that require diverse and creative ideas. We also find that contests with multiple prizes tend to attract more players. We propose an incomplete-information contest model with the contest organizer valuing both the overall quality of proposals and the diversity of ideas. The model offers a new explanation for the coexistence of different prize structures: when the organizer's preference for diversity is sufficiently strong, offering multiple prizes is optimal, whereas a winner-take-all structure is optimal otherwise.

Keywords: innovation contests, multiple prizes, endogenous entry, diversity, procurement

Suggested Citation

Chen, Zhuoqiong and Huang, Yangguang and Liu, Bin, Winner-Take-All or Multiple Prizes? The Role of Idea Diversity in Innovation Contests. Available at SSRN: https://ssrn.com/abstract=4747332 or http://dx.doi.org/10.2139/ssrn.4747332

Zhuoqiong Chen

Harbin Institute of Technology - Shenzhen Graduate School ( email )

Room 301A, Building B, HITSZ campus
University Town of Shenzhen
Shenzhen, Guangdong 518055
China

Yangguang Huang (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Clear Water Bay
Hong Kong

Bin Liu

The Chinese University of Hong Kong, Shenzhen ( email )

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