Consider a Cournot oligopoly where producers launch new products. At first potential buyers are unaware of the product, and firms decide on levels of production, advertising expenditure and a cost-reducing investment. We find the conditions for complementarities among scale, advertising and innovation strategies to arise. In a duopoly with substitute products all variables are higher for the firm that moves from mass advertising to targeted advertising but decrease for the other. In an oligopoly with complementary products all variables are higher for all firms when they shift away from mass marketing. We conclude by linking our results to the empirical literature on internalization which finds a positive relationship between advertising intensity and foreign direct investment.
Activist organizations, interest groups, unions and media reveal information about labour standards. In a world where some consumers are not self-interested, the price of a product made by a multinational enterprise and the latter's location and production decisions depend on the difference in labour standards between developed and less developed countries. We study the effect of an increase in the fraction of informed inequity-averse consumers on the behaviour of multinational frms, on the equilibrium level of labour standards and on the welfare of workers in the less developed countries. An increase in activism deteriorates labour practices and decreases welfare.
This paper studies how incentives are affected by intention-based reciprocity preferences when the principal hires many agents. Our results describe the set of agents’ sensitivities to reciprocity required to sustain a given strategy profile. We also show that hiring reciprocal agents to implement a first- or a second-best contract will always benefit the principal if the strategy profile is symmetric. Instead, when the profile (first or second best) is asymmetric the principal’s interest might be better served by self-interested agents. We conclude the paper by clarifying when symmetric profiles are most likely to arise.