Group composition in contests

Anna Rubinchik | University of Haifa

In the asymmetric contest with players knowing that all the rivals' abilities are distributed independently and uniformly with commonly known, but different, support there is a unique continuous Bayesian-Nash equilibrium. There

1. homogeneity of contestants has no effect on the maximal effort, which is fully determined by the average ability of the group, 
2. the homogeneity increases total expected effort, and
3. it increases (in terms of stochastic dominance) the distribution of the minimal effort.

Hence, in such competitive environments

1. the best team to generate the highest top effort (as in R&D races) consists of only two (ex-ante) best competitors
2. if players are not too different ex-ante, the revenue-maximizing allocation of players into two equal groups admits segregation by ability, with all players in one group having higher top ability than in the other, thus offering, e.g., a rationale behind dividing players (teams) into leagues as a way to increase the spectators' enjoyment.