Extending Nonmarket Strategy: Political Economy and the Radical Flank Effect in Private Politics

This paper examines a private politics environment in which a confrontational activist and a cooperative activist face a profit‐maximizing firm and a self‐regulating firm. The environment is studied from a perspective that combines the radical flank effect from sociology and the political economy approach to private politics and nonmarket strategy. We present a formal model in which behavior depends upon favoritism, awareness of a positive externality, and own or aggregate objectives of the activists, and we calibrate these factors through an online experiment. From the experiment, the greater the harm from the confrontational activist, the higher are the offers to work with the cooperative activist and avoid targeting by the confrontational activist. The self‐regulator is favored by the activists and offers less than the profit‐maximizer. The confrontational activist also favors the self‐regulator by threatening a less aggressive campaign. The intensity of the threat results in a positive externality, and to exploit the externality, donors shift resources from the cooperative activist to the confrontational activist. The transfer is greater if the activists’ objectives are the accomplishments of both activists rather than their own accomplishments. Strategy implications are drawn from the model and the results of the experiment.