Entrant-optimal learning in a contest game

Abstract

We consider a private value single-prize asymmetric information Tullock contest between an incumbent and an entrant. The incumbent’s prize value is common knowledge, whereas the entrant is uncertain about her value and strategically acquires information to learn about it before the contest. Inspired by Roesler and Szentes (2017), we study how the entrant’s endogenous learning influences strategic contest effort choices. The entrant faces a tradeoff between more uncertainty about her value and less intense competition. If the entrant’s value is ex ante weakly lower than the incumbent’s value, full learning is the optimal strategy. However, if the entrant’s value is ex ante the higher one, no learning can be more advantageous than full learning.