Econ 483_Lecture 6_Prizes_Contests

P rizes contests ebay vickrey auction properties of

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Unformatted text preview: he payment depends on the other …rm’ bid, sj . s ! Firm i (say F 1) earns 1 vi s j c i = s i s j r Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Vickrey auction Properties of the Vickrey auction: The winning …rm i makes non-negative pro…t by delivering the innovation in return for the payment si sj . If si is close to sj , the payment is close to the cost ci . Neither …rm has incentive to lie about its report. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Vickrey auction The second-price auction yields an e¢ cient outcome in the sense that: ) Firms report faithfully on the net surplus it can deliver. ) The high-surplus …rm is picked to invest. ) There is no duplication of cost. Though, it works only if the value can be veri…ed ex-post; the ex-post payment depends on the delivered value. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Contest Ex-ante problem of the sponsor: To elicit investment in the best idea, given that payment cannot be conditioned on the value of the delivered innovation. Possible solution: To let the …rms demonstrate their ideas by developing prototypes & then choose between them ex-post. But, this process is too costly. Instead, …rms can make contingent contracts before any investment is made. The contracts specify what price the sponsor will pay to each innovator, contingent only on buying that …rm’ innovation. s Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Lecture 6: Prizes & contests, Contests Econ483: Econ of Innovation & Technology, Ebay Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay eBay eBay is the largest online marketplace where international participants can make sales & purchases. Buyers & sellers are...
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This note was uploaded on 03/16/2014 for the course ECON 483 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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