Informative Activism vs. Lobbying

Both the market and the regulator have incomplete information regarding the products’ characteristics, but non-governmental organizations or activists often have expertise or motivation to investigate and acquire more information. Negative reports about a product’s environmental externalities, for example, may either persuade a regulator to regulate the industry, or buyers to switch to better products. We show that the latter strategy, referred to as (informational) boycotts, is preferred and chosen when the industry in question is very competitive, while informational lobbying is preferred otherwise. There might be multiple equilibria, and the regulator may want to commit to an open-door policy to facilitate regulation. A closed-door policy is more likely to be preferred, we show, when one takes into account that also the market structure itself is endogenous.