Fabian Dietz and  Stephan Eitel published a new paper titled Endogenous Incumbency in Repeated Contests in the BGPE Discussion Paper Series (No 244). 

Abstract

We consider a model of infinitely repeated lottery contests in which the winner of the prior contest (incumbent) additionally gains the opportunity to bias the subsequent contest by exerting early effort in an intermediate stage. An effort-maximizing contest designer strategically chooses the cost advantage of incumbency. We show that the contest designer prefers to set the cost advantage such that the incumbent only partially discourages the contender, i.e. the contender exerts less, but still positive, effort than in an unbiased contest. In this way, rent extraction is higher than under independent lottery contests with no intermediate stage, because (i) players compete fiercer to become the incumbent and (ii) the increase in early effort outweighs the decrease in effort in the biased contest. Therefore, we provide some rationale for incumbency advantages, for example in repeated procurement settings.

Lisa Heidelmeier was recognized for her excellent teaching performance in the summer term of 2024.

Abstract

We investigate the impact of an environmental award in a Bertrand duopoly with green consumers considering a three-stage game. First, the regulator designs the environmental contest. Second, firms choose their green investments, and the winner of the contest is awarded. Third, firms compete in prices, and consumption takes place. We illustrate that the award not only incentivizes green investments and may thus reduce environmental externalities. As consumers perceive the product of the awarded firm to be of superior quality, it also gives rise to vertical product differentiation. This induces market power, and thus anti-competitive effects: Rents shift from consumers to producers, and consumer surplus may decrease, particularly if marginal investment costs in green technologies are high compared to the strength of environmental damage.

Abstract

Although consumers often care about environmental quality, limited attention impairs consumers’ perception of environmental quality. Environmental awards and labels make environmental quality salient and attract consumers’ attention. We analyze how awards and labels affect firms’ investments in environmental quality and social welfare. We show that, with an award, both firms invest in environmental quality; with a label, only one firm invests. Under awards, investments depend positively on salience. Under labels, investments depend non-monotonically on salience. A welfare-maximizing social planner prefers awards over labels if and only if marginal damage and salience are sufficiently high such that consumers overestimate the environmental quality of the goods.

Fabian Dietz has been awarded the BGPE Doctoral Student status as part of the Dr. Hans Riegel Honors Program, which recognizes outstanding performance in BGPE courses and workshops.

Further information can be found here. 

Further information can be found here.

Abstract

We examine the effects of endogenous sequences on the fairness in round-robin tournaments with four players, multiple prizes, and general contest technologies. A tournament is called horizontally ex-ante fair if symmetric contestants have the same expected payoffs (odds) before the tournament starts. It is called perfectly fair if the winning probabilities in each match depend only on the players’ characteristics but not on the position of the match in the course of the tournament. We show that there is no sequence which implies perfect fairness. By contrast, some endogenous sequences imply horizontal ex-ante fairness irrespective of the prize structure. In winner-take-all tournaments, additional endogenous sequences are horizontally ex-ante fair. Our findings question the prevailing use of exogenous sequences in four-player round-robin tournaments in commercial sports despite horizontally ex-ante fair alternatives