Endogenous institutions and political extremism

The election of extreme political leaders is often associated with changes in political institutions. This paper studies these phenomena through a model in which the median voter elects a leader anticipating that he will impose institutional constraints—such as constitutional amendments, judicial appointments, or the implicit threat of a coup—that influence the behavior of future political challengers. It is typically optimal for the median voter to elect an extreme incumbent when democracy is less fully consolidated, when the costs of imposing institutional constraints are intermediate, and when the distribution of potential challengers is asymmetric. The median voter typically elects a more right-wing incumbent when the distribution of potential challengers shifts to the left. Implications of the model for the consolidation of democracy and institutional constraints are discussed, as are several related mechanisms through which politiciansʼ ability to affect institutions may lead voters to optimally elect extremists.     

Learning about challengers

We examine a political agency problem in repeated elections where an incumbent runs against a challenger from the opposing party, whose policy preferences are unknown by voters. We first ask: do voters benefit from attracting a pool of challengers with more moderate ideologies? When voters and politicians are patient, moderating the ideology distribution of centrist and moderate politicians (those close to the median voter) reduces voter welfare by reducing an extreme incumbent's incentives to compromise. We then ask: do voters benefit from informative signals about a challenger's true ideology? We prove that giving voters informative, but sufficiently noisy, signals always harm voters, because they make it harder for incumbents to secure re-election.     

Entry and espionage with noisy signals

We analyze the effect of industrial espionage on entry deterrence. We consider a monopoly incumbent who may expand capacity to deter entry, and a potential entrant who owns an Intelligence System. The Intelligence System (IS) generates a noisy signal based on the incumbentʼs actions. The potential entrant uses this signal to decide whether or not to enter the market. The incumbent may signal-jam to manipulate the likelihood of the noisy signals and hence affect the entrantʼs decisions. If the precision of the IS is commonly known, the incumbent benefits from his rivalʼs espionage. Actually, he benefits more the higher is the precision of the IS while the spying entrant is worse off with an IS of relatively high quality. When the IS quality is private information of the entrant, the incumbent is better off with an IS of high expected precision while the entrant benefits from one of high quality. In this case espionage makes the market more competitive.     

Entry and Competition in the Postal Market: Foundations for the Construction of Entry Scenarios*

This paper presents a model of entry and imperfect competition, which is inspired by the product differentiation literature and incorporates facts pertaining to the postal sector. There are two operators: incumbent and potential entrant. The entrant offers only one of the products (commercial mail) with a specific technology and delivers only to part of the addressees (located in low cost areas). Its degree of coverage is viewed as a quality attribute; it affects demand and hence market share. The incumbent faces a USO while the entrant is an unregulated profit maximizing firm. To illustrate the potential applications of our approach, we provide some numerical simulations of entry scenarios.     

Price,Programming and Potential Competition in US Cable Television Markets

Potential competition in the US cable television industry is empirically examined for 385 markets. Predicted entry probabilities are included in a supply-demand model to permit empirical investigation of the effect of potential competition on incumbent cable operators price and channel programming decisions. Estimation results show incumbents offer more channels to consumers in markets facing greater potential competition from broadband service provider (BSP) wireline overbuilders and/or incumbent local exchange carriers. In particular, when the probability of entry rises to about 42 the average cable system provides six more channels, and price per channel declines from US$ 0.77 to US$ 0.66.JEL Classification: L8, L9, L11We thank Ben Compaine, Shane Greenstein, Anne Hoag, Donald Waldman, Bradley Wimmer, the editor of this journal, an anonymous referee, and participants at the 30th Research Conference on Communication, Information and Internet Policy (TPRC 2002), September 28–30, 2002, Hilton Hotel, Alexandria, Virginia, for comments. Armando Galarraga and Nana Puangpathumanond provided research assistance, and Jane Frenette and Jonathan Levy provided excellent help with FCC cable entry and competition data. The usual disclaimer applies.     

进入管制与产品质量

本文分析了政府进入管制对厂商最优质量水平及市场平均质量水平的影响。在模型中 ,消费者对产品质量的主观推断存在误差 ,而产品需求在短期内保持稳定。财政收入最大化政府设置行政性进入壁垒并对非法进入者进行惩罚。因而 ,非法进入者虽然可以以冒牌的方式进入行业或市场 ,但有面临被处罚的可能性。分析结果表明 ,政府一定有动力实施管制 ,且将查处的力度确定如此水平 ,使得冒牌厂商“打而不死” ;此时 ,市场平均质量水平则低于或等于无管制情形。本文的分析还表明 ,在位厂商和非法进入者的均衡质量水平均与管制力度呈负相关关系。     

A theory of self-fulfilling political expectations

In their pursuit of being re-elected, politicians might not choose high-quality policies but just conform to popular wisdom. The larger are the office spoils, and the more precise is an incumbent's knowledge of voter opinion, the more likely that she will resort to such populism. My main result is that the public's trust or distrust in politicians' behavior may be self-fulfilling. When voters assess the quality of an incumbent politician, they will compare her policy choices with their own prior opinion. If voters think that the incumbent was just trying to conform, a failure to do so will be even more damaging for the incumbent's election chances. However, this only increases the incumbent's incentives to conform, which indeed confirm voters' skepticism. Loosely put, a skeptic voter attitude tends to generate conformist politicians, while a trusting attitude tends to generate confident ones.     

Preemptive Spacing With Vertical Differentiation When Input Quality is of Inelastic Supply

This paper examines a model of vertical differentiation in which an incumbent engages in preemptive spacing to prevent entry. Input quality is of fixed supply, and the incumbent prevents high-end entry by producing a product with all the quality available. It also commits to the production of a minimum-quality product to deter low-end entry. There is no entry in equilibrium, and the incumbent monopolist chooses to sell only its high-quality product. Commitment to the production of the minimum-quality product is used merely as a credible threat to vigorously compete should an entrant also produce a minimum-quality product.     

EXTREMIST PLATFORMS: POLITICAL CONSEQUENCES OF PROFIT-SEEKING MEDIA

We analyze how information about candidate quality affects the choice of electoral platforms made by an office-motivated political challenger. The incumbent is of known quality and located at the ideal policy of the voter. The voter cares for both policy and the candidates' quality and can learn about the challenger's quality by buying information. A high-quality challenger then has an incentive to signal her quality by choosing a policy that induces the voter to buy information. We first study the benchmark case in which the information is supplied exogenously, and its quality is independent of the challenger's platform; this yields multiple equilibria and indeterminacy of equilibrium platforms. By contrast, when the information is supplied by a profit-maximizing media outlet, its quality depends on the challenger's platform and we obtain a unique equilibrium platform. In particular, when the incumbent's quality is relatively low, the media coverage rises and the challenger's platform diverges further from the voter's ideal policy as the voter's preference for quality increases.     

Strategic Entry Deterrence by Limiting Qualities under Minimum Quality Standards

We consider a minimum quality standard (MQS) regulation under a vertically differentiated duopoly model where an incumbent may deter entry by limiting qualities, and explicity examine the strategic interaction between entry cost and a limit quality. We show that MQS will increase social welfare in most cases by reducing the incentive of the incumbent to limit quality, but it might render industry entry unprofitable for the entrant, which could induce predation to deter entry.     

基于产品质量策略性行为的进入壁垒研究

本文从产品纵向差异的角度出发,研究了垄断厂商为构建进入壁垒在选择产品质量方面所采取的策略性行为。通过采用一个扩展式博弈,分析了在位者和潜在进入者的质量选择行为所形成的各种产品质量组合及其支付。研究发现,在位者可以通过一部分研发投资,抢先承诺提供多档次质量的产品,填补消费者的需求空间,减少潜在进入者的期望收益,使其做出不进入的决定。所以,在位者在产品质量方面的策略性行为就构成了进入壁垒。     

PRUDENCE AND SUCCESS IN POLITICS

The paper considers a repeated election game between an infinitely-lived representative voter and finitely-lived, heterogeneous politicians. The voter's prior belief about the incumbent's competency is updated during the incumbent's first term in office. The voter's problem is to find a rule that simultaneously selects and controls politicians. We show that the simple performance rule, standard in the literature, is justified as a time-consistent rule for a forward-looking voter. The outcome of a large class of perfect equilibria is "strategic caution": incumbent politicians slow down the voter's Bayesian learning by taking only weakly informative actions.     

Repeated Elections with Asymmetric Information

An infinite sequence of elections with no term limits is modelled. In each period a challenger with privately known preferences is randomly drawn from the electorate to run against the incumbent, and the winner chooses a policy outcome in a one-dimensional issue space. One theorem is that there exists an equilibrium in which the median voter is decisive: an incumbent wins re-election if and only if his most recent policy choice gives the median voter a payoff at least as high as he would expect from a challenger. The equilibrium is symmetric, stationary, and the behavior of voters is consistent with both retrospective and prospective voting. A second theorem is that, in fact, it is the only equilibrium possessing the latter four conditions — decisiveness of the median voter is implied by them.     

History-based price discrimination and entry in markets with switching costs: A welfare analysis

We analyze history-based price discrimination in an asymmetric industry, where an incumbent, protected by switching costs, faces an entrant who does not have access to information about consumers’ purchase histories. We demonstrate that consumer surplus is higher with uniform pricing than with history-based price discrimination. We find that the entry decision is invariant to whether the incumbent implements history-based pricing or uniform pricing. This implies that the potential abuse of market dominance imposed by history-based price discrimination is exploitation, not exclusion. Finally, we establish that the profit gain to the incumbent from history-based pricing exceeds the associated loss to consumers.     

Corporate social responsibility and market entry

Is the decision of firms to pursue social interest and promote social progress philanthropic or motivated by strategic reasons? Using a simple Spence–Dixit entry model game with homogeneous goods, this paper studies the possible anticompetitive effect of the adoption of corporate social responsibility (CSR) in the form of “consumer friendliness” (i.e., firms’ attention to the welfare of consumers). It is shown that, when the market becomes contestable, the incumbent can select to adopt CSR to hamper to a greater extent the potential entrant, regardless of its choice to engage in CSR activities. In other words, CSR can become a strategic barrier to entry.     

ENTRY AND QUALITY SIGNALLING WHEN ONLY SOME CONSUMERS ARE INFORMED OF THE ENTRANT'S QUALITY

This paper focuses on competition between an incumbent and an entrant when only the entrant's quality is unknown to (some) consumers. The incumbent may or may not know the entrant's quality. The model reveals a separating equilibrium where the entrant's high price signals its high quality when the proportion of informed consumers is at some intermediate value. The case in which the incumbent knows the entrant's quality generates two additional equilibria. When the proportion of informed consumers is large enough, firms choose their prices as in the complete information case. The entrant's high price in combination with the incumbent's low price signals the entrant's high quality. When the proportion of informed consumers is at some intermediate value, the incumbent's high price signals the entrant's low quality, while its low price signals the entrant's high quality. Interestingly, we find that entry may be facilitated with informational product differentiation.     

Price-Matching Guarantees and Entry Deterrence under Incomplete Information

This paper studies price-matching guarantees in a market where entrant does not have perfect information about incumbent’s cost. The low-cost incumbent can adopt price-matching guarantees as a signal to distinguish itself from the high-cost type and thus effectively deter entry. On the other hand, the high-cost incumbent can successfully fool the potential entrant under certain conditions. Compared with the equilibriums in situations where the option of offering a price guarantee is not available, the use of this instrument either makes it easier for the low-cost incumbent to signal its cost, or expands the range of parameters over which the high-cost incumbent is able to deter entry successfully.     

Tariff Policy and the Foreign Entry Decision in the Presence of a Cost-Based Informational Asymmetry

The paper demonstrates that the standard prediction on the relation between tariff rates and the mode of foreign entry—exports or direct investment—may not hold in the presence of incomplete information. A foreign firm lacks full information on the cost structure of an informed incumbent firm located in the domestic (potential) host country. Within a two‐period model, the local incumbent may behave in a manner which keeps the potential foreign entrant uninformed of its cost structure. In such a pooling equilibrium, the uninformed foreign firm either refrains from entering altogether or serves the host country via exports at tariff rates which would, otherwise under complete information, induce entry via direct investment. When entry mode is altered, other standard full‐information effects of trade policy may also no longer hold.     

RESOURCE CURSE,POLITICAL ENTRY,AND DEADWEIGHT COSTS

A simple model of political entry in a two‐sector economy is developed to analyze the effects of natural resource wealth on economic policy, political development, and civil insurrection. The model emphasizes the role of political entry and deadweight costs of taxation on the joint determination of these economic and political outcomes. Contrary to popular belief, my model shows that natural resource abundance is an economic blessing even in a rent‐seeking society, although resource dependence can be negatively associated with economic performance. In a contested political market, dictators care about popular support and hence resource wealth can help reduce the deadweight cost of taxation (and hence the cost of public good provision). On the other hand, natural resource wealth can be a political curse, because it encourages political entry and hence it induces incumbent dictators to run more repressive regimes. With constant returns counterinsurgent technology, however, the equilibrium number of insurgents is independent of the size of resource wealth. The onset of civil war, therefore, depends on the counterinsurgent technology and whether the costs of entry deterrence are affected by resource wealth. This helps clarify the two seemingly contradictory hypotheses that “resource wealth enhances regime durability” and “resource wealth fuels conflict.”