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In this paper we study advertising in markets with positive consumption externalities. In such markets, we show that firms may engage in advertising competition to coordinate consumer expectations on their own brand as long as they produce goods of similar quality. The firm with the lower‐quality product has a greater incentive to advertise. Hence in equilibrium, the lower‐quality product will often be more popular.

Political campaign spending ceilings are purported to limit the incumbent's ability to exploit his fundraising advantage. If the challenger does not have superior campaign effectiveness, in contrast to conventional wisdom, we show that the incumbent always benefits from a limit as long as he has an initial voter disposition advantage, however small and regardless of the candidates' relative fundraising ability. If the challenger has higher campaign spending effectiveness, the effect of limits may be non-monotonic. If the incumbent enjoys a mild initial voter disposition advantage, a moderate limit benefits the challenger. Further restricting the limit favours the incumbent. Stricter limits may lead to the unintended consequence of increased expected spending.

The effect of a contribution cap is analyzed in a political lobbying game where the politician has a policy preference. In contrast to the previous literature without politician policy preferences, more restrictive binding caps always reduce expected aggregate contributions. However the initial imposition of a cap increases contributions if the politician mildly favors the low-valuation lobbyist's policy. The introduction of policy preferences permits analysis of monied interests' policy influence. A more restrictive cap makes it more likely that the politician enacts the policy he would have enacted in the absence of lobbying, even in cases where expected aggregate contributions increase. Adapted from the source document.

With politician preferences over policy outcomes, the effect of a contribution cap with monetary penalties for exceeding the cap is starkly different from the case with an indifferent politician. In contrast to Kaplan and Wettstein (AER, 2006) and Gale and Che (AER, 2006), a cap is never neutral on the expected cost of contributions nor on the policy outcome. Furthermore more restrictive caps can lead to increased aggregate contributions. When the penalty for exceeding the cap is small enough that it is impossible to suppress all contributions, the influence of money on policy is minimized with a binding but non-zero cap and maximized with no cap.

This paper completes Meirowitz (2008) by analyzing the effect of a cap on political campaign spending in an environment where voters have initial preferences over political candidates. The policy implications are starkly different from the previously analyzed case where voters are indifferent between candidates in the absence of campaign spending. We find that a spending cap always favors the a priori popular candidate. This result holds irrespective of whether it is the incumbent or the challenger who is able to more effectively generate and spend contributions.

This paper extends Che and Gale (1998) by allowing the incumbent politician to have a preference for the policy position of one of the lobbyists. The effect of a contribution cap is analyzed where two lobbyists contest for a political prize. The cap always helps the lobbyist whose policy position is preferred by the politician no matter whether it is the high-valuation or the low-valuation contestant. In contrast to Che and Gale, once the cap is binding a more restrictive cap always reduces expected aggregate contributions. However, the politician might support the legislation of a barely binding cap. When politician policy preferences perfectly reflect the will of the people, a more restrictive cap is always welfare increasing. When lobbyist's valuations completely internalize all social costs and benefits, a cap is welfare improving if and only if the politician favors the high-value policy. Even a barely binding cap can have significant welfare consequences.

This article examines the extent to which electoral selection based on candidate quality alone can account for the pattern of re-election rates in the US Senate. In the absence of officeholder benefits, electoral selection is simulated using observed dropout rates from 1946 to 2010. This provides a benchmark for the re-election rate that would be generated by incumbent quality advantage alone. The simulation delivers a re-election rate that is almost identical to the observed rate prior to 1980, at around 78 per cent. In the later subsample, quality-based selection generates a re-election rate that is seven percentage points lower than observed. The divergence in the re-election rates in the later subsample is consistent with the findings of vote margin studies that indicate rising incumbency advantage due to officeholder benefits. In addition, it is found here that the quality-based selection first-term re-election rate is significantly lower than the observed first-term re-election rate. This result supports sophomore surge vote margin studies of officeholder benefits. Adapted from the source document.