From Monopoly to Competition: Optimal Contests Prevail

TL;DR

This paper demonstrates that optimal contest designs in monopolistic settings serve as stable and often unique equilibria in competitive environments, maximizing effort and social welfare.

Contribution

It establishes that monopolistically optimal contests remain equilibrium strategies under competition, often being dominant and Pareto-optimal, thus extending the understanding of contest design in strategic settings.

Findings

Optimal contests form equilibrium in competitive models.

Under natural assumptions, these contests are dominant strategies.

Equilibria with optimal contests maximize social welfare.

Abstract

We study competition among contests in a general model that allows for an arbitrary and heterogeneous space of contest design, where the goal of the contest designers is to maximize the contestants' sum of efforts. Our main result shows that optimal contests in the monopolistic setting (i.e., those that maximize the sum of efforts in a model with a single contest) form an equilibrium in the model with competition among contests. Under a very natural assumption these contests are in fact dominant, and the equilibria that they form are unique. Moreover, equilibria with the optimal contests are Pareto-optimal even in cases where other equilibria emerge. In many natural cases, they also maximize the social welfare.