Authenticity-Driven Motivations in Oligopoly: Efforts, Pricing, and Welfare

Abstract

We develop an oligopoly theory of brand authenticity as a belief-based credence attribute valued by only a subset of consumers. Firms choose prices and costly authenticity efforts, while managers may derive private non-pecuniary benefits from being perceived as intrinsically motivated. Heterogeneity in consumer preferences and managerial motivations jointly determines equilibrium authenticity provision, pricing, and consumer sorting. Firms led by more authenticity-driven managers invest more and, under standard complementarity conditions, charge price premia. Authenticity is privately unsustainable when the attentive audience is small, viable when it is large, and fragile at intermediate sizes. In this fragile region, laissez-faire equilibrium exhibits inefficient exit despite socially valuable participation, reflecting an extensive-margin inefficiency that can be addressed by participation support or belief-based certification.