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Endogenous Communication and Tacit Coordination in Market Entry Games - An explorative experimental study

This paper explores experimentally the effects of costly communication possibilities in market entry games. It is shown that these effects depend on whether entry costs are symmetric or asymmetric. In the former, but not the latter case, communication possibilities increase coordination success substantially and are likely to generate inferior outcomes for consumers. Furthermore, cost asymmetries provide a tacit coordination cue that is robust to changes in the game and is used by experienced players as a substitute to communication. It is also shown that although communication opens up for aggressive market domination strategies, such strategies are not used often successful.

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Paper provided by Lund University, Department of Economics in its series Working Papers with number 2006:12.

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Length: 47 pages
Date of creation: 03 May 2006
Date of revision:
Publication status: Published in International Journal of Industrial Organization, 2010, pages 477-495.
Handle: RePEc:hhs:lunewp:2006_012
Contact details of provider: Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en

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  1. Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990. "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, American Economic Association, vol. 80(1), pages 234-48, March.
  2. Hurkens, S., 1993. "Multi-Sided Pre-Play Communication By Burning Money," Papers 9319, Tilburg - Center for Economic Research.
  3. Kannan Srinivasan, 1991. "Multiple Market Entry, Cost Signalling and Entry Deterrence," Management Science, INFORMS, vol. 37(12), pages 1539-1555, December.
  4. Cabral, Luis M. B., 2004. "Simultaneous entry and welfare," European Economic Review, Elsevier, vol. 48(5), pages 943-957, October.
  5. 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).
  6. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  7. 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.
  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. 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.
  10. Burton, Anthony & Sefton, Martin, 2004. "Risk, pre-play communication and equilibrium," Games and Economic Behavior, Elsevier, vol. 46(1), pages 23-40, January.
  11. 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.
  12. 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.
  13. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  14. Ola Andersson & Erik Wengström, 2007. "Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 321-339, 06.
  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. Crawford, Vincent, 1998. "A Survey of Experiments on Communication via Cheap Talk," Journal of Economic Theory, Elsevier, vol. 78(2), pages 286-298, February.
  17. Cooper, Russell, et al, 1992. "Communication in Coordination Games," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 739-71, May.
  18. Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring.
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