Cheap Talk, Coordination, and Entry

1987/01/01 by Joseph Farrell · 8 citations
Business, Management and Accounting · Decision Sciences · Economics, Econometrics and Finance · #Digital Platforms and Economics #Game Theory and Applications #Merger and Competition Analysis

paper · doi:10.2307/2555533

openalex publication_date 1987/01/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/06

Abstract

We show how costless, nonbinding, nonverifiable communication (cheap talk) can achieve partial coordination among potential entrants into a natural-monopoly industry, where the payoffs are qualitatively like the "battle of the sexes." The analysis would apply equally in other economic situations with such payoffs, for example, bargaining under complete information or choosing compatibility standards. While cheap talk helps achieve asymmetric coordination in a symmetric mixed-strategy equilibrium, it cannot achieve complete coordination if the game involves even a small amount of conflict.

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