Paper #594

Title:

Allocating ideas: Horizontal competition in tournaments

Authors:

Juan J. Ganuza and Esther Hauk

Date:

January 2002

Abstract:

We develop a stylized model of horizontal and vertical competition in tournaments with two competing firms. The sponsor cares about the quality of the design but also about the design location. A priori not even the sponsor knows his preferred design location, which is only discovered once he has seen the actual proposals. We show that the more efficient firm is more likely to be conservative when choosing the design location. Also, to get some differentiation in design locations, the cost difference between contestants can neither be too small nor too big. Therefore, if the sponsor mainly cares about the design location, participation in the tournaments by the two lowest cost contestants cannot be optimal for the sponsor.

Keywords:

Horizontal and vertical competition, tournaments

JEL codes:

D44, D72, J31, L13

Area of Research:

Microeconomics

Published in:

Journal of Economics & Management Strategy, Volume 15, Number 3, Fall 2006, pp. 763-787(25)

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