We formulate a tractable model of pricing under directed search with heterogeneous firm demands. Demand characteristics drive bids in a position auction and enable us to bridge insights from the ordered search literature to those in the position auction literature. Equilibrium pricing implies that the marginal consumer’s surplus decreases down the search order, so consumers optimally follow the firms’ position ordering. A firm suffers from “business stealing” by firms that precede it and “search appeal” from subsequent firms. We find rankings that achieve the maximal joint profit or consumer surplus by constructing firm-specific scores. A generalized second price auction for positions endogenizes equilibrium orders and bids are driven by position externalities that impact incremental profit from switching positions. The joint profit maximization order is upheld when firm heterogeneity concerns mostly their mark-up potentials. But the consumer welfare order is robust when firms differ mostly over their potential market sizes.

This paper presents a theory of the market provision of broadcasting and uses it to address the nature of market failure in the industry. Equilibrium advertising levels may be too low or too high, depending on the nuisance cost to viewers, the substitutability of programmes, and the expected benefits to advertisers from contacting viewers. The equilibrium amount of programming may also be below or above the socially optimal level. Perhaps surprisingly, the ability to price programming may reduce social surplus, while monopoly ownership may increase it.

Product heterogeneity is introduced into the context of spatial price discrimination. Many of the strong properties of the standard homogeneous goods case (which are attained as a limit case here) are shown to be no longer valid. In particular, the social optimum is no longer sustainable as a market equilibrium unless products are either identical or else very different.

Empirical evidence suggests that most advertisements contain little direct information. Many do not mention prices. We analyze a monopoly firm's choice of advertising content and the information disclosed to consumers. The firm advertises only product information, price information, or both, and prefers to convey only limited product information if possible. It is socially harmful to force it to provide full information if it has sufficient ability to parse the information imparted, nor does it help to restrict the information voluntarily provided.

This paper considers the theory of market versus optimal product diversity in the light of two recent advances in oligopoly theory. The first is the development of discrete choice models to describe heterogeneous consumer tastes, and the application of such models to oligopolistic competition. The second advance is the proof that logconcavity of the consumer taste density guarantees the existence of a price equilibrium. We analyze an oligopoly model with price competition and free entry, taking explicit account of the integer constraint. Under the Chamberlinian symmetry assumption (that tastes are i.i.d.), we first show that logconcavity of the taste density implies there is excessive market provision of variety when each consumer buys one unit of the product from one of the firms. We then show that this result extends to price-sensitive individual demands by proving that the equilibrium number of firms is at least as great as that which would be provided at the second-best social optimum subject to a zero-profit constraint for firms. Our results call into question previous findings for representative consumer models that left open the possibility of insufficient product diversity.

The winner-take-all nature of all-pay auctions makes the outcome sensitive to decision errors, which we introduce with a logit formulation. The equilibrium bid distribution is a fixed point: the belief distributions that determine expected payoffs equal the choice distributions determined by expected payoffs. We prove existence, uniqueness, and symmetry properties. In contrast to the Nash equilibrium, the comparative statics of the logit equilibrium are intuitive: rent dissipation increases with the number of players and the bid cost. Overdissipation of rents is impossible under full rationality but is observed in laboratory experiments. Our model predicts this property.