Admittedly the two leading teams did have a bunch of undergraduate students working on them, which offsets their labor costs - and the univesity usually supplies some resources.
Granted, the challenges cited above didn't directly provide any market-ready products, but the practically-minded research and development they induced significantly advanced the algorithmic and engineering know-how available to those looking to create marketable artifacts. More generally, reputation is hugely important among researchers and head-to-head competition is a cost-effective way to generate and distribute reputation.
So yes, prize money works great if you're already paying for research, and you just want to prod the direction of that research a bit.
Coming up with awesome new SDR waveforms is something someone who is already funded can do, or something someone can do for fun (I'll probably enter). In this contest, the cost to enter is really low, and you'll get radio hackers who are interested in the problem. DARPA wins if it gets a few marginal people interested in the problem, not just if they come up with a new production waveform.
Contests work well if they're easy to enter or if winning brings you notoriety beyond the prize. Otherwise, you'd have to set an absurdly high prize to make it a high enough expectation to facilitate raising money for each of the teams, enough to have real competition -- like offering $1t for 51% of Osama Bin Laden in 2001, or $20t for a successful Mars colony for 100 users, etc.