Régis Renault

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.

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.

SCREENING ETHICS WHEN HONEST AGENTS CARE ABOUT FAIRNESS

A principal faces an agent with private information who is either honest or dishonest. Honesty involves revealing private information truthfully if the probability that the equilibrium allocation chosen by an agent who lies is small enough. Even the slightest intolerance for lying prevents full ethics screening whereby the agent is given proper incentives if dishonest and zero rent if honest. Still, some partial ethics screening may allow for taking advantage of the potential honesty of the agent, even if honesty is unlikely. If intolerance for lying is strong, the standard approach that assumes a fully opportunistic agent is robust.

Screening Ethics when Honest Agents Keep their Word

Using a principal-agent setting, we introduce honesty that requires pre-commitment. The principal offers a menu of mechanisms to screen ethics. Agents may misrepresent ethics. Dishonest agents may misrepresent the match with the assigned task (good or bad), while honest agents reveal the match honestly if they have pre-committed. Ethics-screening, that allows for match-screening with dishonest agents while leaving a lower rent to honest agents, is optimal if both honesty and a good match are likely. Otherwise the optimal mechanism is the standard second-best or the first-best (where dishonest agents misrepresent the match), if dishonesty is likely or unlikely respectively.

When does a firm disclose product information

A firm chooses a price and the product information it discloses to a consumer whose tastes are privately known. We provide a necessary and sufficient condition on the match function for full disclosure to be the unique equilibrium outcome whatever the costs and prior beliefs about product and consumer types. It allows for products with different qualities as well as some horizontal match heterogeneity. With independently distributed product and consumer types, full disclosure is always an equilibrium and a necessary and sufficient equilibrium condition is that all firm types earn at least the full-disclosure profit.

Advertising in Markets

Abstract This chapter proposes an analysis of the role of advertising in the transmission of information in markets. It also describes how the economic analysis of informative advertising provides a satisfactory account of advertising practices and discusses the extent to which resorting to alternative approaches to advertising might be fruitful. In doing so, it provides an overview of what has been identified in the literature as the main incentives of firms to resort to advertising as well as the main arguments pertaining to the welfare economics of advertising. The chapter provides some simplified expositions of the various theories and describes some related empirical literature. The exposition starts with a presentation of the analysis of informative advertising. It is first explained how the informative role of advertising can be understood from the theory of search with particular attention to price advertising. Advertising that contains direct product information is then considered, looking at the nature and the amount of such information provided by advertisers and including some considerations on legal restraints on misleading advertising. Finally, the argument that advertising may provide indirect information in the form of quality signaling or as a coordination device is described and discussed. The chapter then moves on to an analysis of the technology through which advertising conveys information to consumers, considering in turn advertising costs, targeting, and information congestion. The perspective is expanded in the final part of the chapter by allowing advertising to have some role other than the transmission of information. In doing so, the welfare implications of advertising are reconsidered while accounting for a potentially persuasive role of advertising or viewing advertising as a good that complements the advertised product in the consumers preferences. The strict consumer rationality assumption is also relaxed. The exposition ends with the dynamics of advertising resulting from its role in the accumulation of goodwill for a product or a brand.

The Costs and Benefits of Symbolic Differentiation in the Work Place

We introduce, in a multiple agents moral hazard setting, a status variable which reflects an agents claim to social recognition in her work. Status is a scarce resource so that increasing an agents status requires that another agents status is decreased. High status agents are more willing to exert effort in exchange for monetary compensations while well-paid agents care more about recognition so that they would exert a higher effort in exchange for a higher status. We obtain results coherent with actual management practices and management experts recommendations such as: (i) status and income should be complements; (ii) egalitarianism is desirable in a static context; (iii) in a long-term work relationship, promotions are more effective than direct monetary incentives.

Privately Observed Time Horizons in Repeated Games

This paper considers the repetition of a finite two person game when each player knows an upper bound on the length of the game, but assigns a positive probability to his opponent overestimating the length of the game. It is shown that with sufficiently little discounting, any payoff vector that strictly Pareto dominates that of a Nash equilibrium of the constituent game can be sustained in a Perfect Bayesian Equilibrium if the number of periods remaining is sufficiently large.