Dueling Contests and Platform’s Coordinating Role

Abstract

Crowdsourcing platforms typically take a passive approach, and they let the competing firms freely design their own contests and allow every solver to self-select and join any of the concurrently running contests. In a model of competing noise-driven contests, we show that the duopoly prize allocation has fewer (but larger) prizes compared with a monopolist contest designer. We also find that contests with firm-chosen budgets and solvers’ endogenous participation create coordination inefficiencies. Thus, platform policies that constrain the competing firms from freely choosing their budgets and offer solvers non-enforceable recommendations toward specific noise-driven contests strictly enhance total welfare. Extending our framework to include arbitrarily correlated ability-driven contests, we highlight the critical role of inter-contest dependence on the efficacy of a platform’s interventions. Specifically, platform nudges to improve solver-contest (mis-)matches are welfare enhancing only when the contests are sufficiently related, and allowing solvers to self-sort is appropriate otherwise. This paper was accepted by Gabriel Weintraub, revenue management and market analytics. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2021.03973 .