Research

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We introduce consumer learning in a model of differentiated duopoly, so that laggards can obtain information on the product’s quality by observing the early adopters’ behavior. This incentivizes firms to influence the consumers’ updating via their quantity or price setting. Investments into product differentiation now have two effects. On the one hand, and as usual, they enhance the firm’s “local” monopoly power. On the other hand, they can serve as a commitment device to soften competition, which is driven by consumer learning. However, depending on the amount invested into differentiation, this commitment may be detrimental for the firms if it is too large. In a Cournot duopoly, for high costs of differentiation, firms invest more into differentiation in a model with consumer learning than in a model without consumer learning, since the commitment effect is not too large. The opposite holds for low costs. These observations have implications for a market platform deciding on whether to install a learning mechanism, such as a bestseller list: if the platform receives a share of the competing firms’ profits, a learning mechanism will only be installed if costs of differentiation are high in a Cournot duopoly. The platform then uses consumer learning as a commitment device for the competing firms to soften their competition.

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Political competition consists of two intertwined phases. In the governance phase, parties invest productive efforts, which voters value independently of their political tastes. The incumbent party is better placed to provide these services. In the election phase, parties choose their position on the political spectrum. The voters’ choice is affected by their ideological tastes as well as the parties’ actions in the previous governance phase. This results in a feedback between the phases and a transmission of advantage across periods. In the resulting dynamic game, this feedback structure implies that the prize associated with holding office as well as the benefits of good governance are endogenously determined. Multiple equilibria exist. In the “moderate equilibrium”, parties choose moderate policy platforms and high governance efforts, while the opposite is true in the “polarized equilibrium”. A conflict between moderation and electoral competitiveness complicates the challenges of electoral reform.

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In many contests competitors invest effort in different tasks.  Ex ante it may not be clear to them how success in the contest depends on the mixture of effort investments in the different tasks. For instance, when applying for a professorship, it may not be clear to applicants how exactly research performances in different fields are weighted against each other by the hiring committee.  Nevertheless, the committee usually has the possibility to transmit information to the contestants before the contest.

This paper addresses the question how the information structure should be designed in such a setting in order to maximize contestants' joint effort.  We show that in a two-player Tullock contest with an ex-ante uncertain Cobb-Douglas production technology the designer cannot benefit by transmitting purely public messages to the contestants. However, if the designer asymmetrically discloses information she can evoke an increase of contestants' efforts.

If the designer can send a purely private message to one contestant, depending on the competitiveness of the contest tasks reflected by comparative cost advantages in the tasks, either no revelation, full revelation, or partial revelation of information may be beneficial for the designer. We show that, in some scenarios the principle of "informational favoritism" of an ex-ante disadvantaged player, e.g., disclosing information to the "weak" underdog, increases contestants' efforts, while in other scenarios "informational discrimination" of an ex-ante disadvantaged player, e.g., disclosing information only to the "stronger" of two specialists, is better.