We develop a model of oligopolistic competition among sellers with heterogeneous costs and analyze a pure strategy equilibrium. We examine the role of consumer price information and seller entry in price formation. When information is exogenous, seller entry does not affect prices, and more price information for non-captive consumers leads to price divergence: low-cost sellers lower prices while high-cost sellers raise prices. Price divergence also occurs when information is endogenized through search and raises the expected price for captive consumers under certain conditions. We also report welfare outcomes and study third-degree price discrimination. In particular, price discrimination and uniform pricing yield equivalent payoffs.

We build a model of policymaking under the threat of unrest. A policymaker chooses how much effort to spend on a public good; effort is unobservable and the outcome conditional on effort is uncertain. A group of citizens protest if the outcome falls short of a reference point; the reference point is determined endogenously by rational expectations about the outcome and by the height of emotions. We show that the effects of stronger emotional reactions on policymaker's effort and the probability of protest are nonmonotonic and depend on the group's ability to inflict damage. Equilibrium may require the policymaker to randomize between providing some effort or no effort at all, in order to temper citizens' aspirations, in which case strong emotional reactions are counterproductive. Optimal emotional reactions are fine-tuned to minimize the probability of protest.