Non-binding signals: are they effective or ineffectual?

Companies often send non-binding messages to their competitors, to consumers, to channel members and to various other recipients. When such messages are in the form of price signals, they tend to make antitrust authorities uneasy since it is widely believed that price signaling can and does serve as a collusion facilitating mechanism. We conducted experimental posted-offer markets with multiple competitive equilibria, and found that contrary to expectations, markets in which sellers could engage in cheap talk had lower contract prices than markets without cheap talk opportunities.posted-offer markets

Confirmatory News

This paper investigates how competition in the media affects the quality of news. In our model, demand for news depends on the market perception of the media's ability to receive correct information: it is positive if and only if news is potentially useful for the voting decision. When the media receives information which contradics commonly shared priors, it either reports this information or it confirms the priors: "most likely, my information is correct, but my potential buyers may be unable to assess the quality of news and attribute it according to common priors". We ask whether competition may help to elicit information from the media. Our answer is positive when news covers issues on which the priors are sufficiently precise, or the follow-up quality assessment is a likely event. However, when news concerns controversial issues and it is hardly possible to asses its quality, competitive pressures induce confirmatory reporting.Competition in the media, quality of news, common priors, reputational cheap-talk

Why factors facilitating collusion may not predict cartel occurrence — experimental evidence

This is the author accepted manuscript. The final version is available from Wiley via the DOI in this recordFactors facilitating collusion may not successfully predict cartel occurrence: When a factor predicts that collusion (explicit and tacit) becomes easier, firms might be less inclined to set up a cartel simply because tacit coordination already tends to go in hand with supra‐competitive profits. We illustrate this issue with laboratory data. We run n‐firm Cournot experiments with written cheap‐talk communication between players and we compare them to treatments without the possibility to talk. We conduct this comparison for two, four, and six firms. We find that two firms indeed find it easier to collude tacitly but that the number of firms does not significantly affect outcomes with communication. As a result, the payoff gain from communication increases with the number of firms, at a decreasing rate

Computer Science and Game Theory: A Brief Survey

There has been a remarkable increase in work at the interface of computer science and game theory in the past decade. In this article I survey some of the main themes of work in the area, with a focus on the work in computer science. Given the length constraints, I make no attempt at being comprehensive, especially since other surveys are also available, and a comprehensive survey book will appear shortly.Comment: To appear; Palgrave Dictionary of Economic

Quadratic Multi-Dimensional Signaling Games and Affine Equilibria

This paper studies the decentralized quadratic cheap talk and signaling game problems when an encoder and a decoder, viewed as two decision makers, have misaligned objective functions. The main contributions of this study are the extension of Crawford and Sobel's cheap talk formulation to multi-dimensional sources and to noisy channel setups. We consider both (simultaneous) Nash equilibria and (sequential) Stackelberg equilibria. We show that for arbitrary scalar sources, in the presence of misalignment, the quantized nature of all equilibrium policies holds for Nash equilibria in the sense that all Nash equilibria are equivalent to those achieved by quantized encoder policies. On the other hand, all Stackelberg equilibria policies are fully informative. For multi-dimensional setups, unlike the scalar case, Nash equilibrium policies may be of non-quantized nature, and even linear. In the noisy setup, a Gaussian source is to be transmitted over an additive Gaussian channel. The goals of the encoder and the decoder are misaligned by a bias term and encoder's cost also includes a penalty term on signal power. Conditions for the existence of affine Nash equilibria as well as general informative equilibria are presented. For the noisy setup, the only Stackelberg equilibrium is the linear equilibrium when the variables are scalar. Our findings provide further conditions on when affine policies may be optimal in decentralized multi-criteria control problems and lead to conditions for the presence of active information transmission in strategic environments.Comment: 15 pages, 4 figure

Nothing But the Truth? Experiments on Adversarial Competition, Expert Testimony, and Decision Making

Many scholars debate whether a competition between experts in legal, political, or economic contexts elicits truthful information and, in turn, enables people to make informed decisions. Thus, we analyze experimentally the conditions under which competition between experts induces the experts to make truthful statements and enables jurors listening to these statements to improve their decisions. Our results demonstrate that, contrary to game theoretic predictions and contrary to critics of our adversarial legal system, competition induces enough truth telling to allow jurors to improve their decisions. Then, when we impose additional institutions (such as penalties for lying or the threat of verification) on the competing experts, we observe even larger improvements in the experts\u27 propensity to tell the truth and in jurors\u27 decisions. We find similar improvements when the competing experts are permitted to exchange reasons for why their statements may be correct

Communication, cooperation and collusion in team tournaments - An experimental study

We study the effects of communication in an experimental tournament between teams. When teams, rather than individuals, compete for a prize there is a need for intra-team coordination in order to win the inter-team competition. Introducing communication in such situations may have ambiguous effects on effort choices. Communication within teams may promote higher efforts by mitigating the internal free-rider problem. Communication between competing teams may lead to collusion, thereby reducing efforts. In our experiment we control the channels of communication by letting subjects communicate through an electronic chat. We find, indeed, that communication within teams increases efforts and communication between teams reduces efforts. We use team members’ dialogues to explain these effects of communication, and check the robustness of our results

Voluntary disclosures as a form of impression management to reduce evaluative uncertainty during M&A

This study develops and tests a set of hypotheses on how to manage investors’ evaluative uncertainty during M&A through a specific form of impression management, namely, interim news events. We suggest that voluntary disclosures are key in influencing investors’ reactions during M&A. Empirical support for our theoretical arguments is shown in a sample of 36,376 deals and 163,023 associated interim news events carried out by NYSE and NSDQ listed organizations over 10 years. Our research contributes to literature on voluntary disclosures, impression management, and managing M&A