Emerging Tech

Innovation Contests With Entry Auction

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Executive Summary

The authors consider procurement of an innovation from heterogeneous sellers. Innovations are random but depend on unobservable effort and private information. They compare two procurement mechanisms where potential sellers first bid in an auction for admission to an innovation contest. After the contest, an innovation is procured employing either a fixed prize or a first - price auction. They characterize Bayesian Nash equilibria such that both mechanisms are payoff - equivalent and induce the same efforts and innovations. In these equilibria, signaling in the entry auction does not occur since contestants play a simple strategy that does not depend on rivals' private information.

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