Two essays in microeconomics

This dissertation consists of two essays. The first essay is a study of strategic firm competition in a differentiated product environment. We develop a tractable spatial model of oligopolistic competition in which firms endogenously determine both franchise/product locations and prices. Remarkably, we find that firms are completely unsuccessful at exploiting endogenous product-specific heterogeneity, whenever, it is the sole source of heterogeneity: while ex-post consumer heterogeneity ensures positive gross profits, competition for market share results in socially excessive product lines and zero net profits. We then introduce exogenous taste heterogeneity, so that consumers also differ in their ex-ante preferences over product lines. We prove that price competition due to the endogenous spatial heterogeneity drives profits below what they would be with only taste heterogeneity. Finally, we introduce multiple product lines, and show that when the product costs differ across product lines, firms earn positive profits as long as consumer preferences over product lines are not perfectly correlated. The second essay is a study of optimal voting rules. Society tastes for government policy vary over time, as society itself changes. Ceteris paribus, having a legislature that can freely tailor policy to reflect these changing tastes is good. However, the composition of a legislature may not always be reflective of society. In particular, the views of the median legislator may sometimes be rather different than those of the median citizen in society: An unchecked legislature can sometimes implement bad policy. The legislative process itself, by choosing more extreme agenda setters, may generate less representative outcomes. We consider both the possibility that the proposer of policy each period is the median member of the legislature and the standard assumption that the proposer is a randomly selected legislator. A proposal is adopted only if it wins approval from a sufficient fraction of the legislature against a status quo corresponding to the policy in the previous period. Building in more inertia amounts to requiring a larger supermajority for approval. Somewhat surprisingly, it is possible that increasing the probability of drawing a less representative legislature reduces the optimal supermajority. Also, building a source of moderacy into who proposes legislation (i.e., the proposer is the median legislator, rather than a randomly selected member of the legislature) may make it optimal to increase the supermajority