Here’s my perspective on comp motivations:
I feel that the prizes for IFComp do encourage people to enter. In the early years most of the prizes were nominal or for amusement value only, but there were usually a few cash prizes and several more which had meaningful value. This was part of what IFComp what it was. It wasn’t the only reason authors entered, but it increased participation, as they say, at the margin. Some authors who might have been on the fence about entering were tipped over by the idea of a prize.
The CF fundraiser started in 2017, with the explicit goal of giving modest prizes to all well-placing entries. (As opposed to giving large prizes to the top few entries – we didn’t want to do that!) This certainly increased participation; you can see that rather directly.
2010 26
2011 38
2012 28
2013 35
2014 42
2015 53
2016 58
2017 79
2018 77
2019 82
2020 103
Again, this wasn’t the only reason for IFComp’s growth. The Twine revolution started earlier (2013) and had a significant effect. But 2017 is when we started getting 80-game IFComps.
On the flip side, writing a comp-size entry is a lot of work, and $500 is a terrible pay rate for it. So prizes are never going to be the central motivation for entering a competition.
To be very fussy, there is one forward-looking clause for most of our comps: the author agrees that the comp version of the game will remain available for free, forever. (Exactly how we ensure this is another recent thread, possibly contentious, so I won’t get into it here.)
I think most people agree that this doesn’t hinder future development. In fact it may encourage it. The more post-comp development you do, the more your final release is differentiated from the (free) comp version.