Auctions for Oscars
When producers strive to make Oscar-worthy films, they essentially join an auction. This is not a first-price or second-price auction, but one in an entirely different category: the all-pay auction. All-pay auctions are common in many scenarios such as running for political office, applying to college, or fighting a war. Before an election, all candidates bid their time and money, but only a few win. During the college application process, almost all students pay an application fee, which is not returned to those who are rejected. In a war, all factions pay with money, lives, and natural resources, but not everyone receives the payoff of triumph. An all-pay auction, unlike the auctions we have studied in this class, requires that all participants pay regardless of whether they win. An analysis of the Oscar race using game theory concepts we learned in class yields interesting results.
According to an article on Vulture.com, when film producers shoot for Oscar nominations, they participate in an all-pay auction. Making an Oscar-quality film comes with multiple costs. Producers must work harder to perfect the plot, the acting, and the editing. Additionally, movie makers must appeal to Oscar voters rather than the general public. This results in a financial loss, as what Oscar voters enjoy seeing often does not align with what a paying moviegoer wants to see. Sociologists Gabriel Rossman and Oliver Schilke analyzed the game of Oscars and found a Nash equilibrium in which the total number of Oscar-type films that producers made fell in a narrow range.
In this game, the players are movie producers, and payoffs have two components: box office earnings and Oscar nominations. To understand the equilibrium, let us look at two situations that are not in equilibrium. If all producers spend a decent amount of effort on Oscar-type films, a given movie would not likely win an Oscar, and its producer would be better off designing a movie that appeals mostly to the general public. If no producers work on Oscar-type films, then a given producer would have an incentive to change his or her strategy and make an Oscar-type film, as such a movie would have little competition in the Oscar race. A Nash equilibrium occurs between these two extremes, and there is a balance between the number of Oscar-type films and the number of other films. Just as cars divided themselves between two routes in some of the traffic games we analyzed, producers also divide themselves between two routes: make an Oscar-type film or do not make an Oscar-type film.
http://www.vulture.com/2015/02/oscar-movies-have-gotten-more-oscar-y-recently.html