Cheap Talk, Coordination, and Entry
Volume: Volume 18, No. 1
Issue: Spring 1987
Pages: pp. 34-39
Authors: Joseph Farrell
Title: Cheap Talk, Coordination, and Entry
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.
JEL Classification
Market Structure: Industrial Organization and Corporate Strategy (6110)
Microeconomics Theory of Firm and Industry under Imperfectly Competitive Market Structures (0226)