Performance Responses to Competition Across Skill-Levels in Rank Order Tournaments: Field Evidence and Implications for Tournament Design

Tournaments are widely used in the economy to organize production and innovation. We study individual contestant-level data on 2796 contestants in 774 software algorithm design contests with random assignment. Precisely conforming to theory predictions, the performance response to added contestants varies non-monotonically across contestants of different abilities; most respond negatively to competition; highest-skilled contestants respond positively. In counterfactual simulations, we interpret a number of tournament design policies (number of competitors, prize allocation and structure, divisionalization, open entry) as a means of reconciling non-monotonic incentive responses to competition, effectively manipulating the number and skills distribution of contestants facing one another. JEL Codes: D02, J4, L2, M5 * Boudreau: London Business School, Strategy Department (email: [email protected]); Helfat: Dartmouth University, Strategy Department (email: [email protected]); Lakhani: Harvard Business School: Department of Technology and Operations Management (email: [email protected]); Menietti: Harvard-NASA Tournament Laboratory (email: [email protected]). We are grateful to members of the TopCoder executive team for considerable attention, support, and resources in the carrying out of this project, including Jack Hughes, Rob Hughes, Mike Lydon, and Ira Heffan. For helpful comments, we thank seminar participants at Duke University, Georgia Tech and London Business School. The authors would like to acknowledge financial support from London Business School Research and Materials Development Grant and the NASA-Tournament Laboratory. All errors are our own.