Investment Behaviour in a Two Period Contest Model

This paper presents a two-period model of talent investments where two clubs compete with respect to a contest prize. We show that two qualitatively different types of equilibria are possible using a closed-loop approach with strictly convex costs: The large market club invests in both periods more than the small market club or the small market club invests in both periods more than the large market club. In case of an open-loop approach with strictly convex costs, however, the large market club always invests more. The open-loop and closed-loop equilibria coincide if costs are linear.