Innovation contests with temporary and endogenous monopoly rents

In this article, a Tullock contest success function is used to model an innovation contest with endogenous innovation height. We can prove stability for this endogenous prize contest. The winner of the contest gains a monopoly rent, which has two dimensions. In the first dimension the winning firm influences the innovation height. The second dimension is the life span of the temporary monopoly. This life span is determined by the contest designer, who can be a social planner or the consumers. We find interior solutions in both cases, whereas consumers prefer a monopoly life span below the social optimum. Furthermore, the optimal number of firms in the contest is two.