Successive Open Innovation Contests and Incentives: Winner-Take-All or Multiple Prizes?

Open innovation contests are a popular way to tap into the creativity of customers. Many firms host multiple, successive open innovation contests in response to different, creative challenges they face. To encourage customers to participate and make an effort in such contests, they offer monetary rewards of varying sizes. Although prior research has investigated the optimal reward design for one-time contests, little is known about how the rewards offered in a contest can influence individuals' ongoing level of participation and their creative effort in subsequent contests. Receiving a reward is a form of positive competence feedback that influences individuals' feelings of competence and intrinsic motivation. Based on cognitive evaluation theory, we argue that these feelings can persist after a contest ends, influencing positively participation and creative efforts in later contests. Our online experiment and also our analysis of the data from an actual open innovation platform show that individuals tend to cease participating in subsequent contests, significantly reducing the size of the crowd over time. Receiving a reward and positive competence feedback alleviates this tendency. Therefore, offering more prizes motivates more high-performing individuals to participate again and to put in more creative effort, which in turn raise the average quality as well as the best quality in subsequent contests. These findings suggest that in successive open innovation contests, multiple rewards not only encourage greater participation, but also promote better quality outcomes. Thus, firms are well advised to expand the positive reward feedback in contests, as doing so will help them to maintain a sizable and motivated crowd of contestants.