Regulation of Television advertising

Regulation of television advertising typically covers both the time devoted to commercials and restrictions on the commodities or services that can be publicized to various audiences (stricter laws often apply to children’s programming). Time restrictions (advertising caps) may improve welfare when advertising is overprovided in the market system. Even then, such caps may reduce the diversity of programming by curtailing revenues from programs. They may also decrease program net quality (including the direct benefit to viewers). Restricting advertising of particular products (such as cigarettes) likely reflects paternalistic altruism, but restrictions may be less efficient than appropriate taxes.television, advertising, regulation, length caps, advertising content

Comparative Advertising: disclosing horizontal match information

Improved consumer information about (symmetric) products can lead to better matching but also higher prices, so consumer surplus can go up or down, while profits rise. With enough firm asymmetry though, the stronger firm's price falls with more information, so both effects benefit consumers. This is when comparative advertising is used, against a large firm by a small one. Comparative advertising, as it imparts more information, therefore helps consumers. While it also improves profitability of the small firm, overall welfare goes down because of the large loss to the attacked firm.comparative advertising, information, product differentiation, quality

Product Characteristics and Price Advertising with Consumer Search

Many advertisements inform the consumer about product characteristics, while others give price information with very little product information, and some provide both types of information. We propose a framework to analyze the incentives for firms to provide various types of information. We consider the case of a single seller. There is no incentive to provide information on product characteristics only, since doing so leads to a holdup problem that the consumers would rationally expect the firm to charge such a high price that no consumer would wish to incur the prior search cost. (A more general argument applies to markets with several firms.) However, price-only and price-and-characteristics advertising can arise depending on the relative strength of product differentiation and consumer search costs. Even when it costs the firm very little to inform consumers the firm may have no incentive to advertise if consumers will sample it anyway. For low search costs the firm has a strict incentive NOT to let consumers know because the firm garners higher profit when consumers have sunk the search cost. Forced disclosure and dissemination of information improves social welfare by eliminating useless search behavior that leads to no purchases (as well as enabling consumers to buy at lower prices). Second, even when the firm must advertise to bring in consumers (i.e., for larger search costs), the firm may prefer to keep consumers in the dark about how much they like the product - this behavior again entails excessive search. Finally, even when the firm finds it optimal to inform consumers of both their match values and the price charged, the level of advertising is too small because the firm only accounts for its private benefit per consumer informed when determining how much to advertise, and not the extra benefit to consumers of making a valuable match.

Consumer Information and Firm Pricing: Negative Externalities from Improved Information

We analyze the effect of consumer information on firm pricing in a model where consumers search for prices and matches with products. We consider two types of consumers. Uninformed consumers do not know in advance their match values with firms, whereas informed consumers do. Prices are lower the greater the proportion of uninformed consumers. Hence uninformed consumers exert a positive externality on the others, in contrast to standard results. This leads to socially excessive investment in gathering prior information when aggregate demand is price-sensitive.

Efficiency and surplus bounds in Cournot competition

We derive bounds on the ratios of deadweight loss and consumer surplus to producer surplus under Cournot competition. To do so, we introduce a parameterization of the degree of curvature of market demand using the parallel concepts of ?-concavity and ?-convexity. The ?more concave? is demand, the larger the share of producer surplus in overall surplus, the smaller is consumer surplus relative to producer surplus, and the lower the ratio of deadweight loss to producer surplus. Deadweight loss over total potential surplus is at Þrst increasing with demand concavity, then eventually decreasing. The analysis is extended to asymmetric Þrm costs.Cournot equilibrium, social surplus analysis, deadweight loss, market performance.

A Beautiful Blonde: a Nash coordination game

In a memorable scene from the …lm ”A Beautiful Mind,” John Nash explains to his friends how to direct their attentions to women in a bar. Game theorists who have seen the …lm point out that the proposed solution is not a Nash equilibrium. Here we determine the Nash equilibria to the attention game. The symmetric mixed strategy equilibrium has resembles a common property resource problem. It has perverse comparative static properties that are not borne out by experimental data. Finally, we discuss alternative ways of formulating the game.coordination, Nash equilibrium, mixed strategy equilibrium, common property resource problem, comparative statics.

Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model

We study price competition in the presence of search costs and product differentiation. The limit cases of the model are the ‘‘Bertrand Paradox,’’ the ‘‘Diamond Paradox,’’ and Chamberlinian monopolistic competition. Market prices rise with search costs and decrease with the number of firms. Prices may initially fall with the degree of product differentiation because more diversity leads to more search and hence more competition. Equilibrium diversity rises with search costs, while the optimum level falls, so entry is excessive. The market failure is most pronounced for low preference for variety and high search costs.

Non-Tariff Barriers and Trade Liberalization

This paper shows that governments have no incentive to introduce non-tariff barriers when they are free to set tariffs but they do when tariffs are determined cooperatively. We then show three results. First, with trade liberalization, there is a progression from u sing tariffs only to quotas, and to antidumping constraints (when quotas are jointly eliminated). Second, there is a narrowing of the range of industries in which each instrument is used. Third, the degree of tariff liberalization and of replacement of ta riffs by NTBs depend on industry characteristics. These results are roughly in line with the empirical evidence.Tariffs, trade policy, reciprocal dumping, quotas, antidumping

Preemptive Entry in Differentiated Product Markets

Models of spatial competition are typically static, and exhibit multiple free-entry equilibria. Incumbent firms can earn rents in equilibrium because any potential entrant expects a significantly lower market share (since it must fit into a niche between incumbent firms) along with fiercer price competition. Previous research has usually concentrated on the zero-profit equilibrium, at which there is normally excessive entry, and so an entry tax would improve the allocation of resources. At the other extreme, the equilibrium with the greatest rent per firm normally entails insufficient entry, so an entry subsidy should be prescribed. A model of sequential firm entry (with an exogenous order of moves) resolves the multiplicity problem but raises a new difficulty: firms that enter earlier can expect higher spatial rents, and so firms prefer to be earlier in the entry order. This tension disappears when firms can compete for entry positions. We therefore suppose that firms can commit capital early to the market in order to lay claim to a particular location. This temporal competition dissipates spatial rents in equilibrium and justifies the sequential move structure. However, the policy implications are quite different once time is introduced. An atemporal analysis of the sequential entry process would prescribe an entry subsidy, but once proper account is taken of the entry dynamics, a tax may be preferable.Product differentiation, rent dissipation, entry deterrence, entry timing, sequential entry

Effciency and surplus bounds in Cournot competition

We derive bounds on the ratios of deadweight loss and consumer surplus to producer surplus under Cournot competition. To do so, we introduce a parameterization of the degree of curvature of market demand using the parallel concepts of ½-concavity and ½-convexity. The ”more concave” is demand, the larger the share of producer surplus in overall surplus, the smaller is consumer surplus relative to producer surplus, and the lower the ratio of deadweight loss to producer surplus. Deadweight loss over total potential surplus is at …rst increasing with demand concavity, then eventually decreasing. The analysis is extended to asymmetric …rm costs.Cournot equilibrium, social surplus analysis, deadweight loss, market performance.