Competition amongst Contests

Abstract

This article analyses the optimal allocation of prizes in contests. While existing models on contest design take the set of participants as being exogenously given, in our model contests compete for participants. Our analysis provides a new argument for the widespread occurrence of prizes that reward suboptimal performance. Moreover, we identify a negative relationship between a contest's predictability and its competitiveness. In particular, we show that the equilibrium prize allocation becomes steeper when the correlation between participants' ability and performance decreases. Using data from professional road running, we provide empirical evidence to support this relationship.