We propose a framework for analyzing transformations of demand. Such transformations frequently stem from changes in the dispersion of consumers' valuations, which lead to rotations of the demand curve. In a wide variety of settings, profits are a U-shaped function of dispersion. A high level of dispersion is complemented by a niche posture, and low dispersion is complemented by a mass-market posture. We investigate numerous applications of our framework, including product design; advertising, marketing and sales advice; and the construction of quality-differentiated product lines. We also suggest a new taxonomy of advertising, distinguishing between hype, which shifts demand, and real information, which rotates demand.

Firms selling multiple quality-differentiated products frequently alter their product lines when a competitor enters the market. We present a model of multiproduct monopoly and duopoly using a general “upgrades” approach that yields a powerful analytical framework. We provide an explanation for the common strategies of using “fighting brands” and of product line “pruning.” The optimal strategy depends on whether entry prompts an incumbent to expand or contract its total output. We also present a general condition that guarantees that a monopolist will sell but a single product. Our model addresses other issues, including intertemporal price discrimination and “damaged goods.”

ABSTRACT. Existing game-theoretic analysis of plurality rule elections predicts the complete coordination of strategic voting: A strict interpretation of Duverger's Law. I reach a different conclusion. A group of voters must partially coordinate behind one of two challenging candidates in order to avoid the success of a disliked incumbent. Departing from existing models, the popular support for each challenger is uncertain. Individuals base their votes upon informative signals of candidate support levels. These represent either the social communication of political preferences throughout the electorate, or alternatively the imperfect observation of opinion poll information. The uniquely stable voting equilibrium entails only limited strategic voting and hence partial coordination. This is due to the surprising presence of negative feedback: An increase in strategic voting by others actually reduces the incentives for an individual to vote strategically. Hence stable multi-candidate support is perfectly consistent with instrumental rationality and fulfilled expectations. DUVERGER'S LAW AND STRATEGIC VOTINGDuverger (1954) introduced his Law by noting that the "simple-majority single-ballot system favors the two-party system." He envisaged an ongoing process involving both voters and political parties with bipartism as an eventual conclusion. Whereas this vision involved only a tendency toward bipartism under the plurality rule, the formal analyses of more recent contributors have generated a rather stricter version of Duverger's Law. Cox (1994) and Myerson and Weber (1993) reinforce Palfrey's (1989) claim that:" [W]ith instrumentally rational voters and fulfilled expectations, multicandidate contests under the plurality rule should result in only two candidates getting any votes." This paper is based on Myatt (1999). Elements have appeared previously under the title "Strategic Voting under the Qualified Majority Rule" (Myatt 2000). Stephen D. Fisher inspired this work with his extensive empirical research on tactical voting in Britain, and with many hours of conversation on the topic. I thank colleagues, seminar participants and reviewers for the many helpful comments that have (hopefully) improved the quality of this work since its inception. I remain responsible for any remaining errors.A NEW THEORY OF STRATEGIC VOTING 2 These authors considered plurality elections where each individual casts a single vote and the candidate with the largest number of votes wins. 1 They found that the uniquely stable equilibrium outcome involves positive support for only two candidates. 2 This is the result of strategic voting, where an individual may switch her vote away from her preferred candidate. Their Duvergerian prediction is that voters will fully coordinate their strategic behavior. Unfortunately, this strictly bipartite prediction is not borne out by the data. Both the United Kingdom and India provide examples of plurality voting systems with multi-candidate support at a constituency level. 3 This might suggest a lack...

What is leadership? What is good leadership? What is successful leadership? Answers emerge from our study of a formal model in which followers face a coordination problem: they wish to choose the best action while conforming as closely as possible to the actions of others. Although they would like to do the right thing and do it together, followers are unsure about the relative merits of their options. They learn about their environment and the likely moves of others by listening to leaders. These leaders bridge differences of opinion and become coordinating focal points. A leader's influence increases with her judgement (her sense of direction) and her ability to convey ideas (her clarity of communication). A leader with perfect clarity enjoys greater influence than one with a perfect sense of direction. When followers choose how much attention to pay to leaders, they listen only to the most coherent communicators. However, power-hungry leaders who need an audience sometimes obfuscate their messages, but less so when their followers place more emphasis on conformity than on doing the right thing.

In the context of a "beauty-contest" coordination game (in which pay-offs depend on the quadratic distance of actions from an unobserved state variable and from the average action), players choose how much costly attention to pay to various informative signals. Each signal has an underlying accuracy (how precisely it identifies the state) and a clarity (how easy it is to understand). The unique linear equilibrium has interesting properties: the signals which receive attention are the clearest available, even if they have poor underlying accuracy; the number of signals observed falls as the complementarity of players' actions rises; and, if actions are more complementary, the information endogenously acquired in equilibrium is more public in nature. The consequences of "rational-inattention" constraints on information transmission and processing are also studied.