Signalling Reversal

Ram Orzach and Yair Tauman ()

International Economic Review, 1996, vol. 37, issue 2, 453-64

Abstract: The case of a strong contestant who has no direct way to demonstrate its strength and may have to send a costly signal to prove it appears frequently in the signaling literature. The authors examine what occurs in signaling models with two or more contestants. The receiver of the signal may serve as a credible coordinator who punishes the senders for not collaborating with each other, the result being a separating equilibrium in which the signal sent by the strong contestants, though costly, is also quite rewarding: it increases their payoff level over and above the level attained when their strength is common knowledge. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1996
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