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Baron Diermeier (2006) - Strategic Activism And Nonmarket Strategy (view source)
Revision as of 19:45, 28 February 2011
, 19:45, 28 February 2011→Summary
#An activist has an incentive through repetition to follow through on its campaign promises of reward and harm and for not exploiting targets that accept its demands.
#A potential target can forestall a campaign through self-regulation by changing its practices proactively but only if the activist can commit not to subsequently launch a campaign or if the proactive change shifts the activist to an alternative target. Self-regulation is plagued by a hold-up problem.
#With multiple potential targets the activist can generate a race to the top in proactive measures. This creates an incentive for an industry to act collectively. #A potential target may develop a reputation for toughness to forestall a campaign, and the incentive to do so is strengthened by a moral hazard problem associated with revelation of its type. Conversely, a potential target that reveals itself as responsive or soft will be a more attractive target and campaigns will be more aggressive in their demands and threats. Potential targets thus have an incentive to signal that they are tough using both public and private politics strategies.
#In an infinitely-repeated game the activist can implement the optimal single-period campaign and has no incentive to shirk on the delivery of rewards and harm if its horizon is sufficiently long. For any given discount factor, however, the activist has an incentive to shirk on the delivery of harm in the optimal single period campaign if the probability of responsiveness is sufficiently high. Consequently, firms that are highly likely to be targets will not incur the single-period optimal campaign.
#If a campaign can be contested and the activist cannot commit to exploit a successful campaign, the target fights on the equilibrium path of play. If the activist can commit not to exploit a successful campaign,a responsive target concedes immediately and a recalcitrant target fights. When the cost of fighting is linear, the campaign is less aggressive when the activist can commit not to exploit a successful campaign.
