Hi Adam,
Being an affiliate AND a vendor, during a launch, prizes ARE important.
Affiliates do get hyped up if there are prizes, specially "unique" ones. For example, nowadays, giving away Cars for a day or a week and Trips to different places is very happening.
How should a vendor decide on the prizes?
Well, this is tricky. Many people nowadays keep limited sales to get a prize.
Say....." You need to make X no.of sales to get this prize"
This way the vendor can determine if they go in a loss or not.
The other competition, is I guess, by LUCK!!!
I think it is because the people KNOW that they can sell some amount of copies. Some keep the prizes AFTER determining who is supporting their lauch.
I am also planning to launch a product soon, so I keep observing vendors on their JV page. You should do it too. See the prizes and also the TERMS and CONDITIONS for them.
Hope that helps
Sim