Econ 483_Lecture 6_Prizes_Contests

The rm that enters cannot evaluate whether its

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Unformatted text preview: If the patent values are relatively low (i.e. if 2 π 1 T < c1 & 1 π 2 T < c2 ), 2 it may be that only one …rm enters the race, but it may be not the right …rm. The …rm that enters cannot evaluate whether its perspective innovation will provide more surplus than that of the rival. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay ) A patent system will not necessarily limit investment to the best idea. ) Patents may lead to ine¢ cient outcomes. - Can a sponsor do better? Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Contests Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Contests A contest-like mechanism can be used to solve the problem of …nding the best idea for a targeted objective. A commitment to pay The sponsor sets a prize & commits to give it away. The sponsor announces an objective (no performance requirements). The sponsor will choose the contestant who comes closest to meeting the objective. This incentive mechanism: - improves on patents by avoiding deadweight loss - but, may result an ine¢ cient duplication of costs Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Contests Auction types: Ascending (English) auctions Descending (Dutch) auctions Vickrey (second-price) auctions Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Ascending (English) auctions John reports $50. George reports $40. Mary reports $45. The start price is $30 (the increment is $10) All players are initially active. $30: John, George & Mary are active. $40: John, George & Mary are active. $50: Only John is active. ! John wins the con...
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