Optimal Design of Consumer Contest

Journal of Marketing, Vol. 71, pp. 140-155, October 2007

48 Pages Posted: 12 Nov 2007 Last revised: 2 Jan 2014

See all articles by De Liu

De Liu

University of Minnesota - Minneapolis

Xianjun Geng

University of Washington - Department of Management & Organization

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management

Abstract

A consumer contest is a sales promotion technique that requires participants to apply certain skills as they compete for prizes or awards. This article is the first to employ a game-theoretical approach to investigate consumer contest design issues, including prize structure, segmentation, and handicapping. First, the authors find that both skill distribution and the number of contestants play an important role in determining the optimal prize structure in consumer contests. Specifically, if the skill distribution has the increasing hazard-rate property, it is optimal for a marketer to use a winner-take-all design. In large contests, for the winner-take-all approach to be optimal, it suffices to have the increasing hazard-rate property only at the high end of the skill distribution. Second, increasing contest size is beneficial to the marketer. Third, a less dispersive skill distribution leads to higher consumption by consumers at all skill levels and thus is beneficial to the marketer. The marketer may achieve less dispersive skill distributions by (1) segmenting or screening contestants according to their skill levels and (2) adopting a performance evaluation scheme that handicaps high-skilled contestants.

Keywords: consumer contests, prize structure, segmentation, handicapping, entry fee

JEL Classification: D44, M31

Suggested Citation

Liu, De and Geng, Xianjun and Whinston, Andrew B., Optimal Design of Consumer Contest. Journal of Marketing, Vol. 71, pp. 140-155, October 2007, Available at SSRN: https://ssrn.com/abstract=1029217

De Liu (Contact Author)

University of Minnesota - Minneapolis ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States

Xianjun Geng

University of Washington - Department of Management & Organization ( email )

Box 353200
Seattle, WA 98195-3200
United States

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)

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