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Endogenous communication and tacit coordination in market entry games: An explorative experimental study

  • Andersson, Ola
  • Holm, Håkan J.

This paper explores the effects of communication in market entry games experimentally. It is shown that communication increases coordination success substantially and generate inferior outcomes for consumers when market entry costs are symmetric. Such effects are not observed when costs are asymmetric, since asymmetries provide a tacit coordination cue used by experienced players (as a substitute to communication). It is also shown that although communication is used both to achieve market domination equilibria and cooperative market separating equilibria, the latter type of communication is much more common and successful.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 28 (2010)
Issue (Month): 5 (September)
Pages: 477-495

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Handle: RePEc:eee:indorg:v:28:y:2010:i:5:p:477-495
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Burton, Anthony & Sefton, Martin, 2004. "Risk, pre-play communication and equilibrium," Games and Economic Behavior, Elsevier, vol. 46(1), pages 23-40, January.
  2. Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring.
  3. Macleod, B. & Brandts, J., 1992. "Equilibrium Selection in Experimental Games with Recommended Play," UFAE and IAE Working Papers 164.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Cooper, Russell, et al, 1992. "Communication in Coordination Games," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 739-71, May.
  5. Andersson, Ola & Wengström, Erik, 2004. "Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies," Working Papers 2004:14, Lund University, Department of Economics, revised 13 Sep 2004.
  6. Sundali, James A. & Rapoport, Amnon & Seale, Darryl A., 1995. "Coordination in Market Entry Games with Symmetric Players," Organizational Behavior and Human Decision Processes, Elsevier, vol. 64(2), pages 203-218, November.
  7. John B Van Huyck & Raymond C Battalio & Richard O Beil, 1997. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 1225, David K. Levine.
  8. Haruvy, Ernan & Stahl, Dale O., 2004. "Deductive versus inductive equilibrium selection: experimental results," Journal of Economic Behavior & Organization, Elsevier, vol. 53(3), pages 319-331, March.
  9. Van Huyck, John B. & Gillette, Ann B. & Battalio, Raymond C., 1992. "Credible assignments in coordination games," Games and Economic Behavior, Elsevier, vol. 4(4), pages 606-626, October.
  10. Cabral, Luis M. B., 2004. "Simultaneous entry and welfare," European Economic Review, Elsevier, vol. 48(5), pages 943-957, October.
  11. Hurkens, Sjaak, 1996. "Multi-sided Pre-play Communication by Burning Money," Journal of Economic Theory, Elsevier, vol. 69(1), pages 186-197, April.
  12. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
  13. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  14. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  15. Meyer, Donald J, et al, 1992. "History's Role in Coordinating Decentralized Allocation Decisions," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 292-316, April.
  16. Eyal Winter & Amnon Rapoport & Darryl A. Seale, 2000. "An experimental study of coordination and learning in iterated two-market entry games," Economic Theory, Springer, vol. 16(3), pages 661-687.
  17. Kannan Srinivasan, 1991. "Multiple Market Entry, Cost Signalling and Entry Deterrence," Management Science, INFORMS, vol. 37(12), pages 1539-1555, December.
  18. Crawford, Vincent, 1998. "A Survey of Experiments on Communication via Cheap Talk," Journal of Economic Theory, Elsevier, vol. 78(2), pages 286-298, February.
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