Designing Sales Contests: Does the Prize Structure Matter?

Lim, Noah; Ahearne, Michael; Ham, Sung H.

doi:10.1509/jmkr.46.3.356

Cited by 88 publications

(66 citation statements)

References 31 publications

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“…To test these predictions, Lim et al (2009) investigate the optimality of a multiple-prize tournament in the presence of symmetric risk-averse contestants. Based on the model by Kalra and Shi, Lim et al predict that multiple positive prizes, in which each prize is of different value, should generate higher efforts than a single prize.…”

Section: Multiple Prizesmentioning

confidence: 99%

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

2012

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Many economic, political and social environments can be described as contests in which agents exert costly efforts while competing over the distribution of a scarce resource. These environments have been studied using Tullock contests, all-pay auctions and rank-order tournaments. This survey provides a comprehensive review of experimental research on these three canonical contests. First, we review studies investigating the basic structure of contests, including the number of players and prizes, spillovers and externalities, heterogeneity, risk and incomplete information. Second, we discuss dynamic contests and multi-battle contests. Then we review studies examining sabotage, feedback, bias, collusion, alliances, group contests and gender, as well as field experiments. Finally, we discuss applications of contests and suggest directions for future research. IntroductionMany economic, political and social environments can be described as contests in which competing agents have the opportunity to expend scarce resources -such as effort, money, time, or troops -in order to affect the probabilities of winning prizes. Examples range from the competition for mates, college admission, patents, or promotions within firms, to the process of litigation or lobbying politicians, to elections, sports competitions, and violent global conflicts (Tullock, 1967;Krueger, 1974). As is obvious from this list, these environments have attracted considerable attention in applications in a wide range of fields, both in-and out-side of economics. They have also been studied extensively by economic theorists in what has become known as the field of contest theory (Konrad, 2009). Although this field continues to attract many young theorists, it has its roots in three models developed in the mid-seventies to early eighties: the Tullock (1980) model of rent-seeking, the Lazear and Rosen (1981) rank-order tournament model, and the all-pay auction (Hirshleifer and Riley, 1978;Nalebuff and Stiglitz, 1983;Dasgupta, 1986;Hillman and Riley, 1989). Despite the fact that the three models historically developed somewhat independently, they represent special cases of a general contest model that can be formulated in a unified framework.Despite an extensive and established theoretical literature, much less effort has been devoted to empirically investigate individual behavior in different contests and compare such behavior with theoretical predictions. The main reason is that it is not trivial to measure individual effort in the field since the researcher can only observe the performance of contestants, which is a function of effort, ability and luck (Ericsson and Charness, 1994). The majority of empirical studies use either firm level data (Prendergast, 1999) or sports data (Szymanski, 2003). Because it is typically difficult to measure the actual effort expended by players in the field, almost all of these studies focus solely on investigating whether the pattern of outcomes is consistent with the theoretical predictions.Controlled experimen...

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Section: Multiple Prizesmentioning

confidence: 99%

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

2012

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“…The experiment used z-Tree software (Fischbacher 2007), with a procedure similar to Bull, Schotter, and Weigelt's (1987) and Lim, Ahearne, and Ham's (2009). In all six treatments, subjects were told that their task was to select a Decision Number (e i ) from 0 to 70.…”

Section: Experiments 1 Design and Proceduresmentioning

confidence: 99%

Social Loss Aversion and Optimal Contest Design

Lim

2010

Journal of Marketing Research

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When managers are designing a contest to motivate effort by salespeople, service employees, franchisees, or product development teams, a key question is, What should the optimal proportion of winners and losers be? Prevailing marketing theory predicts that the proportion of winners in a contest should always be lower than the proportion of losers. Not only has this theory not been empirically tested, but it is also based on the assumption that contestants care solely about the value of the prizes they receive. This self-interested assumption has been increasingly challenged in marketing and economics. This article uses a behavioral economics model to formalize the idea that if contestants also care about their contest outcomes relative to other contestants, changing the proportion of winners in a contest can alter the reference points contestants use to make these social comparisons. Consequently, a contest with a higher proportion of winners than losers can yield greater effort than one with fewer winners than losers if the degree of social loss aversion in the contestants is sufficiently strong. Two incentive-aligned experiments show that this prediction can be valid in situations with public announcements of contest outcomes.

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“…Because our laboratory setting closely parallels the empirical model, it is easy to compare the observed behavior against the equilibrium predictions. This also gives us an opportunity to use observed behavior as an equilibrium selection criterion and better understand its practical implications; see Wang and Krishna (2006), Lim et al (2007), and Haruvy and Stahl (2007) for more empirical tests of theoretical models.…”

Section: Results 1 (A)mentioning

confidence: 99%

“…The profit implications of these social effects need further scrutiny. Whereas we tested our model in a laboratory setting, future research can attempt to test our model in a field setting to the extent possible (e.g., Lim et al 2007, Krishna and Ünver 2008, Simester et al 2009). Such field studies can augment our understanding of the impact of reference groups on a firm's profits.…”

Section: Resultsmentioning

confidence: 99%

Reference Groups and Product Line Decisions: An Experimental Investigation of Limited Editions and Product Proliferation

Amaldoss

Jain

2010

Management Science

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S ome luxury goods manufacturers offer limited editions of their products, whereas some others market multiple product lines. Researchers have found that reference groups shape consumer evaluations of these product categories. Yet little empirical research has examined how reference groups affect the product line decisions of firms. Indeed, in a field setting it is quite a challenge to isolate reference group effects from contextual effects and correlated effects. In this paper, we propose a parsimonious model that allows us to study how reference groups influence firm behavior and that lends itself to experimental analysis. With the aid of the model, we investigate the behavior of consumers in a laboratory setting where we can focus on the reference group effects after controlling for the contextual and correlated effects. The experimental results show that in the presence of strong reference group effects, limited editions and multiple products can help improve firms' profits. Furthermore, the trends in the purchase decisions of our participants point to the possibility that they are capable of introspecting close to two steps of thinking at the outset of the game and then learning through reinforcement mechanisms.

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Designing Sales Contests: Does the Prize Structure Matter?

Cited by 88 publications

References 31 publications

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments

Social Loss Aversion and Optimal Contest Design

Reference Groups and Product Line Decisions: An Experimental Investigation of Limited Editions and Product Proliferation

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