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Cheap talk with multiple strategically interacting audiences: An experimental study

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  • Li X.
  • Peeters R.J.A.P.

    (GSBE)

Abstract

We consider a cheap-talk setting that mimics the situation where an incumbent firm the sender is endowed with incentives to understate the true size of the market demand to two potential entrants the receivers. Although our experimental data reveals that senders messages convey truthful information and this is picked up by the receivers, this overcommunication relative to standard theoretical prediction does not enhance efficient entry levels and payoffs to beyond what can be achieved without any communication. The reason is that receivers fail to optimally translate the information received in their entry decision, possibly due to overcautiousness.

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File URL: http://pub.maastrichtuniversity.nl/af6eeddf-2c3c-4d9e-9655-dcef87886758
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Bibliographic Info

Paper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 035.

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Date of creation: 2013
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Handle: RePEc:unm:umagsb:2013035

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Related research

Keywords: Noncooperative Games; Design of Experiments: Laboratory; Group Behavior; Asymmetric and Private Information; Mechanism Design; Search; Learning; Information and Knowledge; Communication; Belief;

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