Research

How should a seller pay a recommender when sales are verifiable but the recommendation is noncontractible, and what can the contract guarantee when advice costs are private? We show that at most two publicly observed contracts conditional on sales yield the seller's highest payoff in some equilibrium. A behavior contract combines low cost promotion with high cost recommendation for credibility, while a truthful contract carries any remaining truthful service. Direct commitment avoids the resulting information and message rents, so its value is weakly higher. With state independent message costs, delegation attains the commitment value in equilibrium, but pooling limits its guarantee to no communication. Profitable campaigns require a mix of consumers who can be influenced by recommendations and those who provide stable demand, while uniform pricing extends their effects to consumers who never see the recommendation.

performance contracts · limited commitment · strategic communication · recommendations · uniform pricing

We study how a mandatory return policy affects prices and quality when some consumers mistake inferior products for superior ones. Under monopoly, this policy raises welfare only when it induces a switch from inferior to superior quality. If quality remains inferior, realized returns destroy surplus. Under duopoly, introducing the return policy strictly raises the probability of superior quality and lowers each seller’s equilibrium profit. Returns also make the net revenue from an inferior product hump-shaped, so the equilibrium price supports either meet at a quality cutoff or are separated by a gap. Better quality does not always raise welfare because realized returns consume resources. With N sellers, competition benefits sophisticated consumers but can ultimately leave naive consumers purchasing inferior products.

We study how media power affects costly evidence acquisition in a disclosure game with competing senders. Public persuasion changes both receiver beliefs and incentives to produce hard evidence. Asymmetric media access lets an advantaged sender avoid acquisition, while symmetric access can reveal information at low costs but suppress evidence production when costs are high.