Handbook of Game Theory and Industrial Organization, Volume II
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Handbook of Game Theory and Industrial Organization, Volume II

Applications

Edited by Luis C. Corchón and Marco A. Marini

This second volume of the Handbook includes original contribution by experts in the field. It provides up-to-date surveys of the most relevant applications of game theory to industrial organization. The book covers both classical as well as new IO topics such as mergers in markets with homogeneous and differentiated goods, leniency and coordinated effects in cartels and mergers, static and dynamic contests, consumer search and product safety, strategic delegation, platforms and network effects, auctions, environmental and resource economics, intellectual property, healthcare, corruption, experimental industrial organization and empirical models of R & D.
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Chapter 6: Contest theory

Applications

Luis C. Corchón and Marco Serena

Extract

A contest is a game where contestants exert costly and irretrievable effort in order to obtain one or more prizes with some probability. Many real-life situations comply with this general definition. Political parties try to win the elections by spending resources on political campaigns. Plaintiffs and defendants try to win a trial by spending money on lawyers. Armies try to win wars by buying weapons and hiring soldiers. Lobbyists try to persuade policy makers by carefully preparing influential speeches. Students compete for scholarships by spending time studying hard. Sports people try to win sports competitions, or break world records, by tireless training. Job applicants try to get a job by giving their all on assessment day. And television quizzes, public procurements, R & D contests, and virtually countless other scenarios comply with the definition of a contest. In fact, contests can be regarded as an allocation mechanism on an equal footing with an authority or the market. Contest literature traces back to the seminal contributions of Tullock (1967, 1980) and Krueger (1974) who studied a particular type of contest – rent-seeking – and of Becker (1983) who studied lobbying. Complementary surveys over the literature on contests are: Nitzan (1994), Szymanski (2003), Corchón (2007) and Konrad (2009). We aim here to provide an up-to-date review of some of the main contributions in the field.

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