The optimal design of skill-based consumer contests in the context of online entertainment

This dissertation looks at several issues in designing an optimal skill-basedconsumer contest (SBCC). Consumer product (or service) companies, such asonline entertainment providers, often use SBCCs to promote the consumption oftheir products (or services). The main objective of a SBCC is to maximize theprofit from the enhanced consumption by consumers rather than their outcome inthe contest. This research is the first to investigate design issues in contests of thiskind.The first part of the dissertation explores the role of SBCCs in onlineentertainment area by focusing on the status-seeking behavior of human beings.Drawing from psychology literature, I argue that the desire for status provides a strong motive for consumers to compete with each other in online entertainmentcommunities.In the second part of the dissertation, I build a game-theoretical model tostudy a handful of design issues arising from the SBCCs. In this framework, amonopoly firm faces n consumers who may differ in skill levels. The firm offers aset of prizes to consumers in a SBCC that requires two inputs: skill andconsumption. One of the main findings in this research is that a Winner-Take-Allprize structure is often optimal (but not always) for the SBCCs. Another finding isthat consumers will compete more aggressively when their skill levels are closerto each other. As a result, the firm may be better off by segmenting consumersbased on their skill levels. In addition, in some cases, the firm is better off bycharging an entry fee to exclude low-skilled consumers. These findings contributeto existing literature on contest designs and provide practical guidelines forstructuring a SBCC.The last part of the dissertation empirically analyzes two individual-leveldatasets from a wireless game to verify the insights obtained from the theoreticalmodel.