Cheap-Talk Coordination of Entry by Privately Informed Firms

In-Uck Park

RAND Journal of Economics, 2002, vol. 33, issue 3, 377-393

Abstract: I analyze and compare the effects of sequential and simultaneous cheap-talk communication (e.g., preannouncement of entry) among privately informed potential entrants who then play a normal-form entry game. The first main result is that cheap-talk communication is powerful enough to enable the potential entrants to coordinate on an efficient outcome for each and every contingency. The second is that sequential cheap talk is more dextrous in this task in the sense that it can generate a greater variety of efficient outcomes than simultaneous cheap talk. The precise extent to which it does so is also explained.

Date: 2002
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