Tournament incentives are common in organizations and there remains an on-going debate about when different tournament prize structures are most effective. Our study examines tournament group performance under two prize structures: 1) Winner-takes-all [WTA] tournaments where only the top performer wins a prize and 2) (almost) Everyone-is-a-winner [EIAW] tournaments where only the bottom performer does not win a prize. Three hundred sixty-four students form groups of four and participate in multiple, sequential real effort tournaments. We use a combination of psychological and economic theories to predict how social identification with fellow contestants moderates the relative effectiveness of WTA versus EIAW tournaments. Consistent with our prediction, we find that WTA tournaments (relative to EIAW tournaments) have a stronger positive effect on group effort when contestants identify more with fellow contestants. This is in line with social identity theory wherein stronger identification with a group results in people perceiving greater homogeneity (including characteristics such as abilities) amongst group members. Economic theory then predicts when contestants are homogenous (heterogeneous), optimal incentives favor WTA (EIAW) tournaments. Implications for theory and practice are discussed.