Implications of team submissions in open innovation contests

Since the early aughts, open innovation platforms such as InnoCentive and HeroX have helped seekers (firms, SMEs, startups) develop and launch open innovation contests by inviting external (independent) solvers to submit their solutions. In an open innovation contest, an award is given to the top-quality submission, where the quality of each submission depends on two salient factors: (1) the costly effort(s) exerted by the solver(s); and (2) the random innovative shock(s) generated by the solver(s). Hence, highly novel contests are shock-driven, whereas less novel contests are effort-driven. In this paper, we examine if and when the platform (and the seekers) should encourage team submissions instead of individual submissions. We analyze a game-theoretic model of an open innovation contest associated with a decomposable problem and compare the equilibrium outcomes for two cases when solvers can make only (a) individual submissions and (b) team submissions. Solvers prefer team submissions due to free-riding and reduced competition (fewer submissions), which can afford them to reduce their effort(s). Consequently, team submissions may result in low-quality submissions, which are detrimental to the seekers. Even so, due to random shocks, we find team submissions are beneficial to the seekers when the seeker’s problem is less novel and the solver’s effort cost is sufficiently high. In addition, even when the seeker’s problem is highly novel, we find that team submissions can benefit the seekers when team submissions can attract sufficiently more external solvers to counteract the two negative effects associated with free-riding and reduced competition. Our results continue to hold when the reward level is endogenously determined.