Abstract
Conventional theories of competition classify contests as being either “productive”, when the competitive efforts generate a surplus for society, or “unproductive”, when competition generates no social surplus and merely distributes already existing resources. These two discrete categories of competition create a division of real-world situations into analytical categories that fails to recognize the entire spectrum of competitive activities. Taking the existing models of productive and unproductive competition as benchmark idealizations, this paper revisits the relationship between the privately and socially optimal levels of competition in the full range of intermediate cases, as well as in the extremum cases of destructive and super-productive competition.
Highlights
Competition is a fundamental ingredient of efficient markets
Our results show that competition is increasingly desirable when the degree of the net social productivity of the contest increases, and that a greater use of competition-boosting policies is warranted in industries with large positive spillover effects between competitors
The received view in competition scholarship is that the desirability of competition hinges upon the social productivity of the underlying activity: productive competition is desirable and should be encouraged, and unproductive competition is undesirable and should be discouraged
Summary
Competition is a fundamental ingredient of efficient markets. Yet not every form of competition is productive or socially desirable. This is the special case considered by Tullock (1967, 1980), and our ‘‘benchmark’’ for undesirable competition This category encompasses purely distributive activities that produce a private gain for the contestants, V [ 0, but which fail to generate a corresponding benefit to society, T 1⁄4 0. We revisit the relationship between the private value of the prize, V, and the social value of the contest, T, measured as the social value of the activity at the net of the positive or negative externalities produced by the contest Through this framework, we will show that private incentives to compete are rarely aligned with the social objective and the amount of contestants’ expenditures may exceed or fall short of the socially desirable values in the full range of competitive contests.. While discovery contributes to social welfare, the allocation of intellectual property rights among competitors has distributive effects, which affect the overall level of dissipation through competition
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
