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Repeated signaling games

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  • Kaya, Ayça
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    Abstract

    I analyze a class of repeated signaling games in which the informed player's type is persistent and the history of actions is perfectly observable. In this context, a large class of possibly complex sequences of signals can be supported as the separating equilibrium actions of the "strong type" of the informed player. I characterize the set of such sequences. I also characterize the sequences of signals in least cost separating equilibria (LCSE) of these games. In doing this, I introduce a state variable that can be interpreted as a measure of reputation. This gives the optimization problem characterizing the LCSE a recursive structure. I show that, in general, the equilibrium path sequences of signals have a simple structure. The shapes of the optimal sequences depend critically on the relative concavities of the payoff functions of different types, which measure the relative preferences towards payoff smoothing.

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    Bibliographic Info

    Article provided by Elsevier in its journal Games and Economic Behavior.

    Volume (Year): 66 (2009)
    Issue (Month): 2 (July)
    Pages: 841-854

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    Handle: RePEc:eee:gamebe:v:66:y:2009:i:2:p:841-854

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    Web page: http://www.elsevier.com/locate/inca/622836

    Related research

    Keywords: Signaling games Dynamic games Repeated games Asymmetric information;

    References

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    1. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
    2. Cho, In-Koo, 1990. "Uncertainty and Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 575-95, October.
    3. John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
    4. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
    5. Esther Gal-Or, 1989. "Warranties as a Signal of Quality," Canadian Journal of Economics, Canadian Economics Association, vol. 22(1), pages 50-61, February.
    6. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
    7. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
    8. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
    9. Fudenberg, Drew & Levine, David K, 1989. "Reputation and Equilibrium Selection in Games with a Patient Player," Econometrica, Econometric Society, vol. 57(4), pages 759-78, July.
    10. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
    11. Damme, E.E.C. van & Nöldeke, G., 1990. "Signaling in a dynamic labor market," Open Access publications from Tilburg University urn:nbn:nl:ui:12-154421, Tilburg University.
    12. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
    13. Cho, In-Koo, 1987. "A Refinement of Sequential Equilibrium," Econometrica, Econometric Society, vol. 55(6), pages 1367-89, November.
    14. Admati, Anat R & Perry, Motty, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 345-64, July.
    15. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
    16. Cramton, Peter C, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 205-25, January.
    17. Kremer, Ilan & Skrzypacz, Andrzej, 2007. "Dynamic signaling and market breakdown," Journal of Economic Theory, Elsevier, vol. 133(1), pages 58-82, March.
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    Cited by:
    1. Toxvaerd, Flavio, 2010. "Dynamic Limit Pricing," CEPR Discussion Papers 8104, C.E.P.R. Discussion Papers.
    2. Ayca Kaya, 2013. "Dynamics of price and advertising as quality signals: anything goes," Economics Bulletin, AccessEcon, vol. 33(2), pages 1556-1564.
    3. Byoung Heon Jun & In-Uck Park, 2005. "Anti-Limit Pricing," Discussion Paper Series 0503, Institute of Economic Research, Korea University.
    4. Chia-Hui Chen, 2012. "Type composition, career concerns, and signaling efforts," Theory and Decision, Springer, vol. 73(3), pages 401-422, September.

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