The Design of Innovation Tournament with Registration and Invitation Expenses

Abstract

The innovation tournament is a novel tool to boost innovation by holding a competition for innovators. To run the tournament, the organizer may charge a registration fee when a candidate wants to participate or may entice elite contestants with cash subsidies. In this paper, we study the optimal design of the innovation tournament with registration or invitation expenses. The problem is formalized as a game theory model to analyze the contestants' behavior and the organizers' expected profit. We then derive the equilibrium efforts of the participants and discuss the optimal tournament designs, including the tournament types. We find that when all possible contestants wish to participate regardless of the entry fee, the contributed tournament is the best option because the fees enlarge the value of the winner's award. However, when contestants only participate if they judge the entry fee to be appropriate, then any of the contributed, free-entry or invitational tournaments could be optimal, depending on the participation function.

Keywords: Innovation tournament, crowdsourcing; pricing, registered and invitational fees, performance incentives