sequential formation of coalitions in games with externalities and fixed payoff division this paper analyzes a sequential game of coalition formation when the division of the coalitional surplus is fixed and the payoffs are defined relative to the whole coalition structure gains from cooperation are represented by a valuation which maps coalition structures into payoff vectors i show that any core stable coalition structure can be attained as a stationary perfect equilibrium of the game if stationary perfect equilibria may fail to exist in general games a simple condition is provided under which they exist in symmetric games furthermore symmetric stationary perfect equilibria of symmetric games generate a coalition structure which is generically unique up to a permutation of the players a general method for the characterization of equilibria in symmetric games is proposed and applied to the formation of cartels in oligopolies and coalitions in symmetric majority games journal of economic literatureclassification numbers c78 c71 1996 academic press inc

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

consensus building how to persuade a group many decisions in private and public organizations are made by groups the paper explores strategies that the sponsor of a proposal may employ to convince a qualified majority of group members to approve the proposal adopting a mechanism design approach to communication it emphasizes the need to distill information selectively to key members of the group and to engineer persuasion cascades in which members who are brought on board sway the opinion of others the paper unveils the factors such as the extent of congruence among group members and between them and the sponsor and the size and governance of the group that condition the sponsor s ability to maneuver and get his project approved

collaborate or consolidate assessing the competitive effects of production joint ventures we analyze collaborations in which two firms facing external competition reorganize to form an input joint venture as an alternative to horizontal merger under standard regularity conditions the collaboration can lead to higher profits than a horizontal merger though the effect on prices quantities and welfare depends on the form of downstream competition in light of our results regarding profits we provide reasons why firms might still wish to merge imperfect information cost synergies and organizational asymmetries we further consider how our comparisons change with the managerial structure of the joint venture i e by delegation of input pricing jel l13 l23 l42

strategic extremism why republicans and democrats divide on religious values party platforms differ sharply from one another especially on issues with religious content such as abortion or gay marriage given the high return to attracting the median voter why do vote maximizing politicians take extreme positions in this paper we find that strategic extremism depends on an intensive margin where politicians want to induce their core constituents to vote or make donations and the ability to target political messages toward those core constituents our model predicts that the political relevance of religious issues is highest when around one half of the voting population attends church regularly using data from across the world and within the united states we indeed find a nonmonotonic relationship between religious extremism and religious attendance

communication structure and coalition proofness experimental evidence abstract the paper analyzes the role of the structure of communication i e who is talking with whom in a coordination game we run an experiment in a three player game with pareto ranked equilibria where a pair of players has a profitable joint deviation from the pareto superior equilibrium we show that specific communication structures lead to different coalition proof equilibria in this game results match the theoretical predictions subjects communicate and play the pareto superior equilibrium when communication is public when pairs of players exchange messages privately subjects play the pareto inferior equilibrium even in these latter cases however players beliefs and choices tend to react to messages despite the fact that these are not credible

the informational theory of legislative committees an experimental analysis we experimentally investigate the informational theory of legislative committees gilligan and krehbiel 1989 two committee members provide policy relevant information to a legislature under alternative legislative rules under the open rule the legislature is free to make any decision under the closed rule the legislature chooses between a member s proposal and a status quo we find that even in the presence of biases the committee members improve the legislature s decision by providing useful information we obtain evidence for two additional predictions the outlier principle according to which more extreme biases reduce the extent of information transmission and the distributional principle according to which the open rule is more distributionally efficient than the closed rule when biases are less extreme we find that the distributional principle dominates the restrictive rule principle according to which the closed rule is more informationally efficient overall our findings provide experimental support for gilligan and krehbiel s informational theory

endogenous structures of association in oligopolies the formulation of associations of firms in an oligopoly with linear demand is analyzed as a two stage noncooperative game in the first stage firms form associations in order to decrease their costs and in the second stage they compete on the market examples of associations include r d joint ventures and groups of firms adopting common standards in equilibrium the associations formed exhibit two general features they are asymmetric and inefficient

an updating country study thailand s needs and prospects in the 1990s abstract as one of the fastest growing economies of the latter half of the 1980s thailand is rapidly emerging as one of the new nics in seeking to examine the major issues facing thailand in the 1990s our paper focuses on two major themes first we address the trade and industrial policy issue while our conclusions favor a fairly orthodox open trade pattern of industrialization favoring functional rather than selective intervention we question the wisdom of trusting thai growth to the single engine of exports the second theme of the paper underlines the need for reasons of equality as well as of expediency for devoting more attention and resources to rural development

the competitive effects of partial equity interests and joint ventures abstract antitrust authorities should consider the trade off between enhanced efficiency and reduced competition in cases of partial ownership this paper examines the competitive effects side of that trade off in the context of a modified cournot model we show that in markets where entry is difficult partial ownership arrangements could result in less output and higher prices than otherwise even if the ownership shares are relatively small these effects arise solely because these arrangements link the fortunes of actual or potential competitors producing a positive correlation among their profits in this sense the effects are purely structural they arise not because of increased opportunities for collusion or changes in the concentration of control but because the linking of profits reduces each firm s incentive to compete since these links internalize free rider problems associated with policing collusion and investing in entry deterrence however they could also enhance cartel stability and profitability

growth forecasts belief manipulation and capital markets abstract we analyze how a benevolent privately informed government agency would optimally release information about the economy s growth rate when the agents hold heterogeneous beliefs we model two types of agent conforming and dissenting the former has a prior that is identical to that of the government agency whereas the latter has a prior that differs from that of the government agency we identify both informative and uninformative equilibria informative equilibria are equilibria in which the government agency s equilibrium signal leads to a revision of beliefs we demonstrate that the uninformative equilibria can in fact dominate the informative ones in terms of ex post social welfare

inflexible rules in incentive problems in practice contracts involve standard terms or rules allowing for variations only under exceptional circumstances we develop a simple model in which optimal contracts display this feature even in the absence of transactions costs rules arise when an agent has countervailing incentives to misrepresent private information these incentives are created by endowing the agent with a critical factor of production ex ante applications in regulatory labor and legal settings

collective memory cultural transmission and investments memory plays a crucial role in the transmission of cultural and national identity in every soci ety and every country the collective memory1 transmitted to the young by the older generation through a variety of channels e g school textbooks the media monuments and commemora tive rituals influences their perception of their cultural identity and values and their willingness to invest in them with major economic as well as political and social consequences this natu rally raises two questions first what would be the socially optimal transmission of collective memory to the young is it the case as intuition might suggest that the older generation should strive to be as unbiased accurate and comprehensive as possible in communicating its collec tive memory to the younger generation if not why and how should it depart from this objec tive second is collective memory transmission in practice likely to differ from what would be socially optimal and if so how these questions are at the heart of many current debates including those over education policy e g how history should be taught the level of control the state should have over school textbooks and curriculum 2 over the media e g the role of the corporation for public broadcasting cpb in the united states or the british broadcasting corporation bbc in the united kingdom 3 and over cultural integration e g centralized ver sus decentralized institutions in the european union legislation affecting freedom of speech in the united kingdom 4

basic analytics of multilateral lending and surveillance abstract i analyse the role of multilateral financial institutions in a world of global capital markets assuming that they have an informational advantage over private lenders in the market for sovereign debt i show that the adverse selection problem in this market may be solved through certification if the multilateral agency does not care too much about borrower country welfare however with lending the private information of the agency will be revealed whatever its weighting of borrower welfare vs private lenders profits multilateral lending on concessional terms also alleviates the moral hazard problem that investment in creditworthy borrowers is reduced as private lenders seek to avoid ex post default by constraining credit

a servant of two masters communication and the selection of international bureaucrats international bureaucrats must often serve multiple principals who collectively choose policy how does this affect bureaucrats incentives to truthfully reveal their private information i construct a cheap talk model in which a bureaucrat possesses private information about how policies translate into outcomes the bureaucrat can communicate publicly observable messages about this information to two policymakers who must then bargain over a set of policy choices i find that both the bureaucrat s willingness to communicate informatively and the choice of an optimal bureaucrat are highly contingent on the bargaining powers of the two policymakers when each policymaker is bound to adhere to the bargaining outcome moderate bureaucrats are most preferred in contrast when at least one policymaker can leave the bargaining table and exercise an outside option biased bureaucrats can be optimal i illustrate my findings by examining un weapons inspections in iraq from 1991 to 2003 i wish to thank bruce bueno de mesquita michael gilligan catherine hafer matias iaryczower dimitri landa adam meirowitz alastair smith and the editor and two anonymous reviewers for their feedback previous drafts of this article were presented in the new york university politics department research workshop and the 2006 annual conference of the midwest political science association

why only nixon could go to china right wing politicians sometimes can implement policies that left wing politicians cannot and vice versa contemporary wisdom has it that only nixon could have gone to china we develop a model to explain this phenomenon a policy issue could depend on information on which every one could potentially agree on policy or on values on which agreement is impossible politicians who value both reelection and policy outcomes realize the nature of the issue whereas voters do not only a right wing president can credibly signal the desirability of a left wing course of action the nixon paradox can hold then if citizens vote retrospectively on the issue

information aggregation and optimal structure of the executive we model two aspects of executives in parliamentary democracies decision making authority is assigned to individuals and private information is aggregated through communication when information is relevant to all policies and communication is private all decisions should be centralized to a single politician a government that holds cabinet meetings where information is made available to all decision makers outperforms one where communication is private a multimember cabinet can be optimal it need not be single peaked around the most moderate politician or ideologically connected centralization is nonmonotonic in the degree of ideological divergence in a large cabinet all power should be given to the most moderate politician even when uncertainty is policy specific and a single politician is informed on each policy power should never be fully decentralized our model provides a justification for centralized authority and cabinet meetings that enhance the quality of policy

the role of information sharing in cooperative research and development abstract this paper develops a model in which r d cooperation enables firms to increase the probability of discovering a new product by sharing information about research strategies and outcomes numerical computations of equilibrium show that cooperation tends to increase in the underlying probability of research success total surplus generally increases as more firms cooperate and cooperation in equilibrium never exceeds that which maximizes total surplus however when the probability of an innovation s success is relatively low no cooperation occurs nor will much be socially desired finally self imposed limits on membership in the cooperative entity tend to reduce total surplus

spatial competition with heterogeneous firms i model endogenous horizontal and vertical product differentiation with arbitrarily many heterogeneous firms firms are asymmetric in that they differ in their marginal costs i prove that under an equilibrium refinement all economically relevant firm outcomes are uniquely determined across all strict subgame perfect nash equilibria there are two central results first a firm s price market share and profit are independent of its neighbors marginal costs conditional on the average marginal cost in the market second more productive firms are more isolated all else equal in particular the distance between two firms is strictly decreasing in their average marginal cost

information provision by interest groups we investigate interest groups incentives to inform consumers about the damaging practices of firms and the impact such an ig has on firms technology choices the ig aims to reduce the production of some bad say pollution it can at a cost investigate firms production practices and inform consumers about its findings since consumers care about the environment revealing differences in pollution levels between firms leads to vertical product differentiation the information by shifting sales from dirty towards clean firms reduces pollution we show that the ig is most inclined to investigate firms in relatively competitive industries and that the threat of being unmasked as a polluter prompts dirty firms to adopt a clean technology

efficient secrecy public versus private threats in crisis diplomacy this paper explores when and why private communication works in crisis diplomacy conventional audience cost models suggest that state leaders must go public to reveal information in interstate crises because leaders cannot enhance their credibility by tying their hands if domestic audiences cannot observe their private signals i present a crisis bargaining game where both the sender and the receiver of signals have a domestic audience the equilibrium analysis demonstrates that a private threat albeit of limited credibility can be equally compelling as a fully credible public threat secrecy works in crisis diplomacy despite its informational ine cacy because secrecy insulates leaders from domestic political consequences when they capitulate to a challenge to avoid risking unwarranted war the logic of e cient secrecy may shed light on the unaccounted history of private diplomacy in international crises the alaska boundary dispute illustrates this logic

cheap talk with two senders and complementary information this paper studies a cheap talk model with two senders having partial and non overlapping private information communicating with an uninformed receiver the two senders private information is complementary in the sense that the marginal impact of one sender s private information on the receiver s ideal action depends on the other sender s private information when the two senders communicate simultaneously their information transmission exhibits strategic complementarity more information transmitted by one sender leads to more information transmitted by the other sender when the two senders have like biases it is always optimal for the receiver to delegate the decision rights to the sender with a smaller bias when two senders have opposing biases simultaneous communication is more likely to dominate delegation

the incidence of indirect taxes on low income households in jamaica it is generally understood that the main concern of tax policy in developing countries with respect to the poor is that the poor not be made poorer the usual aim of tax reformers is thus either to avoid regressivity in tax design or to reduce regressivity through tax reform measures more positive actions to reduce poverty are it is usually argued best left to government expenditure policies in recent years however skepticism has grown as to the effectiveness of conventional public expenditure policy in reaching the very poor 2 in addition the potential scope for tax policy to affect factor prices and hence income distribution in developing countries has been stressed 3 the distributional effects of taxes thus continue to be of interest in most developing countries in the developed countries advances in modeling the effects of taxation have shed light on the complex relationships between taxation and income distribution and new approaches to incidence analysis have cast doubt on the earlier consensus as to the relative regressivity of various taxes 4 a few applications of these new ideas and techniques to developing countries are now available 5 in this article we contribute to this literature by making use of a new data set to analyze the incidence of indirect taxes on the poor in jamaica a decade ago a comprehensive review of fiscal incidence studies concluded that in only two of the 44 studies examined covering 22 developing countries was the tax system basically regressive that is in only two countries did the poor broadly defined appear to pay a larger proportion of their incomes in tax than did the rich 6 in a number of other cases however there was evidence of some regressivity to

cheap talk and bogus network externalities in the emerging technology market many emerging technologies exhibit path dependent demands driven by positive network feedback such network effects profoundly impact marketing strategists thinking in today s network economy however the significant network externalities expected by many people often fail to materialize in the emerging technology market we analyze this phenomenon in the context of a technology distribution channel by studying cheap talk strategies under information asymmetry we show that incentive compatible contracts are essential for achieving credible information transmission in our model the better informed technology vendor has an incentive to inflate the retailer s ex ante belief of network externalities when a wholesale price contract is adopted when properly termed revenue sharing contracts are implemented there are information efficient cheap talk equilibria where truthful information transmission is mutually beneficial when the vendor s information is imperfect even revenue sharing contracts cannot guarantee credible information transmission if there is significant prior belief disparity between the vendor and the retailer this study demonstrates how information inefficient equilibria e g information blockage arise because of the conflict of interest or the conflict of opinion among channel members it also explores the role of cheap talk in facilitating channel coordination

the esteem theory of norms when esteem is costless to supply does it provide an effectivemeans of enforcing norms for public goods production i examine thebasic mechanics of an enforcement through esteem model whileesteem may enforce norms to considerable degree systematicunderenforcement remains the general result even in very basicsettings with a minimum of transactions costs i also examine whyesteem has positive value in equilibrium if it can be producedcostlessly i e why esteem remains scarce and what collectiveaction problems plague the supply of esteem

lobbying and asymmetric information informational lobbying the use by interest groups of their alleged expertise or private information on matters of importance for policymakers in an attempt to persuade them to implement particular policies is often regarded as an important means of influence this paper analyzes this phenomenon in a game setting on the one hand the interest group is assumed to have private information which is relevant to the policymaker whilst on the other hand the policymaker is assumed to be fully aware of the strategic incentives of the interest group to mis report or conceal its private information

horizontal reputation and strategic audience management we study how a decision maker uses his reputation to simultaneously influence the actions of multiple receivers with heterogenous biases the reputational payoff is single peaked around a bliss reputation at which the incentives of the average receiver are perfectly aligned we establish the existence of two equilibria characterized by repositioning toward this bliss reputation that only differ through a multiplier capturing the efficiency of reputational incentives repositioning is moderate in the more efficient equilibrium but the less efficient equilibrium features overreactions and welfare may then be lower than in the no reputation case we highlight how strategic audience management e g centralization delegation to third parties with dissenting objectives alleviates inefficient reputational incentives and how multiple organizational or institutional structures may arise in equilibrium as a result

strategic alliances a substitute for strategic trade policy abstract in this paper loose competition policy towards strategic alliances is examined as an alternative to strategic trade policy alliances are assumed to design a strategic contract which changes incentives in the output market permitting strategic alliances and using strategic trade policy yield exactly the same outcome if the good is not consumed domestically and all firms of a country form a single alliance the performance of the policy options in a more general setting depends on a number of interacting factors including i the share of domestic consumption ii the nature of product market competition iii the initial number of firms in the industry and iv the feasibility of international alliances irrespective of the nature of product market competition the alliance solution performs particularly well for low to medium shares of domestic consumption and if international alliances are feasible in small number oligopolies

an analysis of cooperative research and development i analyze the effects of cooperative research whereby member firms agree to share the costs andfruits of a research project before they undertake it in this model industrywide agreements tend to have socially beneficial effects when the degree ofproduct market competition is low when there are r d spillovers in the absence of cooperation when a high degree of sharing is technologically feasible and when the agreement concerns basic research rather than development activities i show that a royalty free cross licensing agreement among any number offirms lowers the equilibrium level of innovation even though it increases the efficiency of r d through sharing

optimal delegation with multi dimensional decisions this paper investigates optimal communication mechanisms in a framework with a twodimensional policy space and no monetary transfers contrary to the one dimensional setting if the conflicts of interests between the principal and the agent are different on each dimension the optimal mechanism never exhibits any pooling and the agent s ideal policies are never chosen simple delegation sets that trade off inflexible rules and full discretion are no longer optimal but take more complex shapes

warning labels as cheap talk why regulators ban drugs abstract one explanation for drug bans is that regulators know more than consumers about product quality but why not just communicate the information in their ban perhaps via a would have banned label because product labeling is cheap talk any small market failure tempts regulators to lie about quality inducing consumers who suspect such lies to not believe everything they are told in fact when regulators expect market failures to result in under consumption of a drug and so would not ban it for informed consumers regulators ex ante prefer to commit to not banning this drug for uninformed consumers

cheap talk and burned money we augment the standard crawford sobel 1982 econometrica 50 1431 1451 model of cheap talk communication by allowing the informed party to use both costless and costly messages the issues on which we focus are the consequences for cheap talk signaling of the option to burn money and the circumstances under which both cheap talk and burned money are used to signal information

cheap talk with two audiences these problems have in common a simple structure an informed sender says something to two interested but uninformed receivers who then take actions based on their beliefs these actions affect the sender as well as the receivers in this paper we study how costless nonverifiable claims cheap talk can affect these beliefs and hence the actions and how the incentives for truthful revelation to one receiver are affected by the presence of the other we then ask how welfare is affected by whether claims are made in public or in private as some of the above examples suggest public messages may be more credible than private messages addressed to either audience one possibility is that the presence of one audience can discipline the sender s relationship with the other we call this one sided

strategic communication networks in this paper we consider situations in which individuals want to choose an action close to others actions as well as close to a payoff relevant state of nature with the ideal proximity to the common state varying across the agents before this coordination game with heterogeneous preferences is played a cheap talk communication stage is offered to players who decide to whom they reveal the private information they hold about the state the strategic information transmission taking place in the communication stage is characterized by a strategic communication network we provide a direct link between players preferences and the strategic communication network emerging at equilibrium depending on the strength of the coordination motive and the prior information structure equilibrium strategic communication networks are characterized in a very tractable way and compared in term of efficiency in general a maximal strategic communication network may not exist and communication networks cannot be ordered in the sense of pareto however expected social welfare always increases when the communication network expands strategic information transmission can be improved when group or public communication is allowed and or when information is certifiable

cheap talk and the fed a theory of imprecise policy announcments this paper examines the problem faced by the federal reserve in announcing its private information about its future policies because it would like to manipulate expectations and pursue a time inconsistent policy the fed cannot reveal its policy objectives precisely and credibly it can however communicate some information about its goals through the cheap talk mechanism of vincent crawford and joel sobel making announcements that are imprecise and only giving ranges within which these goals may lie copyright 1989 by american economic association

a model of electoral competition with incomplete information a model of two candidate electoral competition is developed in which voters are uncertain about the policy either candidate would implement if elected candidates simultaneously announce policy positions from which voters attempt to infer the true positions the candidates would adopt announcing a position different from the true position is costly to the winning candidate with these costs increasing as the difference between the true policy and the announced policy increases a refinement of the sequential equilibrium concept is used to describe the behavior of candidates and voters

market distortions and government transparency in this paper we investigate how government transparency depends on economic distortions we first consider an abstract class of economies in which a benevolent policy maker is privately informed about the exogenous state of the economy and contemplates whether to release this information our key result is that distortions limit communication even if transparency is ex ante pareto superior to opaqueness it cannot constitute an equilibrium when distortions are sufficiently high we next confirm this broad insight in two applied contexts in which monopoly power and income taxes are the specific sources of distortions jel d82 e61

language meaning and games a model of communication coordination and evolution language is a powerful coordination device we generalize the cheap talk approach to pre play communication by way of introducing a meaning cor respondence between messages and actions and by postulating two axioms met by natural languages players have a lexicographic preference second to material payoffs against deviating from the meaning correspondence under two sided communication in generic and symmetric n 3 n coordination games a nash equilibrium component in such a lexicographic communication game is evolutionarily stable if and only if it results in the unique pareto efficient out come of the underlying game we extend the analysis to one sided communica tion in arbitrary finite two player games jel c72 c73 z 3

is economics useful for public policy economists have always played an important role in major public policy debates even so i believe that the role of economists in these public policy discussions has often been misguided because it has typically relied upon best practices stated in the form of general guidelines or even universal principles however best practices are not best if the specific situation does not conform with the assumptions that underlie the advice so my first conclusion is a cautionary and negative one specific circumstances differ so profoundly across individuals firms markets countries and time that most any attempt to define best practices that apply in all circumstances will lead to profoundly misleading public policy recommendations however even if economics cannot identify the truth it can often identify a truth so my second conclusion is a more positive one economists should continue to develop multiple theories that inform public policies but we should also focus our efforts on identifying and testing the critical assumptions that drive the results of these theories recognizing that the validity of any assumptions will depend intimately on specific circumstances i illustrate these two main conclusions with specific examples from my own work i conclude with some best practices recommendations of my own recognizing the obvious irony of such an effort

who benefits from a sender s credibility concern the sender or a receiver abstract in an information transmission situation a sender s concern for its credibility could endow itself with an invisible power to control a receiver s decision so that the sender can manipulate information without being detected the current paper models this paradoxical role of the sender s credibility concern

budgetary devices for curbing spending prone ministers and bureaucrats in this paper i study asimple game of the budgetary process thegame has three players a spending proneminister who proposes a budget a primeminister who accepts or vetoes and abureaucrat who provides non verifiableinformation about policy the bureaucratis appointed by the spending minister ishow that in this setting public spendingis excessive this result stems from theproposal power of the minister and hisincentive to appoint a spending pronebureaucrat next i examine two devices forcontrolling public spending binding budgettargets imposed by the prime minister anddelegating veto power to a spending aversefinance minister it is shown that thelatter device is more effective than theformer device to curb a spending proneminister because it not only reduces theproposal power of the spending minister but also induces him to appoint lessspending prone bureaucrats

communication in bargaining over decision rights abstract this paper develops a model of bargaining over decision rights between an uninformed principal and an informed but self interested agent we introduce two different bargaining mechanisms tacit and explicit bargaining in tacit bargaining an uninformed principal makes a take it or leave it price offer to the agent who then decides whether to accept or reject the offer in the equilibrium of the game the principal inefficiently screens out some agent types so that the agent s private information cannot be fully utilized when the decision is made in explicit bargaining in which parties can communicate explicitly via cheap talk before tacit bargaining however an equilibrium with no such inefficient screening exists even when the conflict of interest is arbitrarily large we also follow a mechanism design approach showing that under certain conditions explicit bargaining is an optimal bargaining mechanism that maximizes the joint surplus of the parties

the output and profit effects of horizontal joint ventures the effects of production joint ventures on their parents profits and total industry output are analyzed using a conjectural variations model joint ventures that represent new producing entities are shown to be more likely because the profits of parents in the same industry are more likely to increase under conditions of cooperative as opposed to rivalrous behavior under the same circumstances industry output increases although a modest rise in cooperation among firms suffices to reverse these effects the precise results are shown also to depend upon the degree of coordination of the output decisions of the joint venture and its parents copyright 1992 by blackwell publishing ltd

the strategy of manipulating conflict two decision makers choose hawkish or dovish actions in a con ict game with incomplete information the decision making can be manipulated by extremists who send publicly observed cheaptalk messages the power of extremists depends on the nature of the underlying con ict game if actions are strategic complements a hawkish extremist provocateur can increase the likelihood of con ict by sending messages which trigger a fear spiral of hawkish actions this reduces the welfare of both decision makers if actions are strategic substitutes a dovish extremist paci st can send messages which cause one decision maker to back down and become more dovish this reduces his welfare but bene ts the other decision maker the hawkish extremist is unable to manipulate the decision makers if actions are strategic substitutes and the paci st is equally powerless if actions are strategic complements

information incentives and organizational mode we examine the choice of organizational mode for a two stage production process wherein cost realizations at each stage are observed only by the producing party when these costs are positively correlated the principal prefers to undertake second stage production herself when the correlation is negative and sufficiently small she will prefer that the agent who performs the first stage also perform the second for large negative correlation either mode might be preferred when costs are uncorrelated the principal is indifferent between modes

money or friends social identity and deception in networks abstract strategic communication occurs in virtually all committee decision environments theory suggests that small differences in monetary incentives between committee members can leave deception a strategically optimal decision crawford and sobel 1982 galeotti et al 2013 at the same time in natural environments social incentives can also play an important role in determining the way people share or withhold truthful information unfortunately little is known about how monetary and social incentives interact to determine truth telling we investigate this issue by first building a novel model and then testing its equilibrium predictions using laboratory data in the absence of social identity the model s predictions are supported there is more truthful communication between those who share monetary incentives than those who do not we find that the effect of identity is asymmetric sharing the same identity does not promote truth telling but holding different identities reduces truthfulness overall as compared to environments lacking social identity committees with both monetary and social incentives exhibit truthful communication substantially less frequently

vaporware suddenware and trueware new product preannouncements under market uncertainty a firm may want to preannounce its plans to develop a new product in order to stimulate future demand but given that such communications can affect rivals incentives to develop the same new product a firm may decide to preannounce untruthfully in order to deter competitors we examine an incumbent s preannouncement strategy when there is uncertainty regarding the commercial viability of a new product opportunity and a threat of rival entry each firm has a private assessment of the market potential for the new product two competitive incentives arise for the incumbent in terms of discouraging rival entry it can use preemptive communication or it can remain silent and instill a pessimistic market potential outlook we find that an incumbent prefers to follow a vaporware strategy i e declares plans to pursue a new product opportunity even when it may have no development intentions when its market forecasting capabilities are weak and the demand side benefits from preannouncing are small by contrast when the incumbent has strong market forecasting capabilities and the demand side benefits are small the incumbent adopts a suddenware strategy i e remains silent about its new product plans even when it actually plans to develop the new product finally when its market forecasting capabilities are strong and the demand side benefits are large the incumbent prefers to engage in a trueware strategy i e truthfully preannounces development plans we show that an interplay between competition related and demand related considerations is what allows trueware to emerge as an equilibrium in the absence of any ex post cost to engaging in vaporware in an extension we let the incumbent s actual development plans leak out and allow the entrant to wait and learn those plans prior to setting a research and development level we identify conditions for the entrant to postpone development despite the risk of being late to market as well as conditions for the entrant to commence development immediately despite not knowing the incumbent s plans based on the observed preannouncement strategy

language and government coordination an experimental study of communication in the announcement game one of the key roles of government is to coordinate the activities of citizens one reason why governments are efficient facilitators of coordinated action in addition to their ability to force compliance or tax is that they are typically endowed with more information than the individuals they govern this advantage creates a dilemma for them however since it forces them to decide on how they should distribute the information in their possession to the population this paper investigates this question we investigate the announcement game defined by the government and those it governs and focus on communication strategy that government uses to communicate private information to the citizens this communication strategy involves 1 partitioning the state space in an attempt to mask the true state of the world and 2 choosing what type of language to use in order to communicate elements of this partition we present evidence that the language used to execute a communication strategy does affect the efficiency of the equilibrium convergence process and also demonstrate that subjects playing the role of the government exhibit a great deal of sophistication in the communication strategies they employ and the language they use to execute them

when does ethical code enforcement matter in the inter organizational context the moderating role of switching costs drawing on signaling theory we suggest that a supplier s enforcement of ethical codes sends signals about the supplier that affect a buyer s decision to continue their commitment to the supplier we then draw on side bet theory to hypothesize how switching costs influence the importance of a supplier s enforcement of ethical codes in predicting a buyer s continuance commitment to a supplier we empirically test our model with data from 158 purchasing managers across three manufacturing industries results confirm the connection between ethical code enforcement and continuance commitment but suggest that a supplier s enforcement of ethical codes matter less when switching suppliers is perceived as too costly

green business and blue angels this paper presents a model of a monopolist svoluntary overcompliance with legal environmentalstandards under asymmetric information about thefirm s environmental impacts the key assumptions are the existence of quality premia for environmentalsoundness a positive but imperfect degree ofmonitoring and adaptive consumer expectations conditions necessary for overcompliance to arise in aprofit maximizing equilibrium are derived the effectsof a third party eco labeling system are analyzed itis shown that the existence of an independent labelingauthority increases the likelihood of overcomplianceto be profit maximizing moreover firms might have anincentive to lobby for the introduction of such asystem the effect of consumers risk preferences andan instrument for preventing greenwash companieslying about their environmental performance is alsodiscussed

cross border mergers and strategic alliances this paper develops a model with distribution costs to study firm cooperation in forming strategic alliances and mergers under different types of foreign market entry modes that is export or foreign direct investment fdi under both export and fdi we find that cross border alliances mergers dominate domestic alliances mergers and cross border alliances and mergers are preferred to independence if and only if distribution cost is high under export cross border alliances are chosen in equilibrium if distribution cost is high under fdi and with high distribution cost cross border alliances mergers are chosen in equilibrium if plant setup cost is low high

increasing the profits of a subset of firms in oligopoly models with strategic substitutes consider an industry composed of n firms in a symmetric equilibrium designate a subset of s n firms and marginally reduce the strategic variables of the firms in the subset if the remaining firms simultaneously make the best reply to this exogenous displacement under what circumstances will profits of the firms in the designated subset increase we show that in the case of cournot competition among producers of perfect substitutes a marginal contraction is strictly beneficial strictly harmful if and only if the number of firms in the designated subset exceeds the adjusted number of firms outside it by strictly more strictly less than one the adjustment factor is unity when cost and demand functions are linear but more generally depends on the convexity of the cost and demand curves thus a marginal contraction of two firms in a triopoly has no effect on the profits of firms in the subset if cost and demand functions are linear if instead cost is linear but the inverse demand function is strictly concave strictly convex a marginal contraction will strictly decrease strictly increase profits the analysis is extended to the effects of nonmarginal exogenous changes in the outputs of the constrained firms this extension has implications for the relationship of stackelberg sequential move and nash simultaneous move equilibria our analysis has broad application to illustrate we show that it unifies results in the literature on export subsidies horizontal mergers and strikes the paper is organized as follows in section i our comparative static result is derived in section ii we present a wide range of applications in the conclusion and the appendix we generalize our analysis to other situations involving strategic substitutes

setting quality expectations when entering a market what should the promise be this paper examines optimal advertised quality actual quality and price for a firm entering a market it develops a two period model where advertised quality influences expectations and hence trial and the gap between actual quality and expectations determines satisfaction which in turn impacts second period sales in such situations a company makes a choice between advertising high quality and getting trial but little repeat and advertising low quality and getting low trial but high repeat results are derived by numerical methods as well as analytically for a special case of the model the model suggests it is optimal to overstate quality when i customers rely relatively less on advertising to form quality expectations and ii customers intrinsic satisfaction with a product is high these results are consistent with deceptive advertising cases at the ftc which showed more deception for unknown firms and for firms whose customers were more satisfied they are also consistent with the decisions made by future managers mbas except that the respondents would advertise higher versus lower quality when advertising was effective

persuasive puffery sellers often make claims about product strengths without providing evidence even though such claims are mere puffery we show that they can be credible because talking up any one strength comes at the implicit trade off of not talking up another potential strength puffery pulls in some buyers who value product attributes that are talked up or emphasized while pushing away other buyers who infer that the attributes they value are relative weaknesses when the initial probability of making a sale is low there are more potential buyers to pull in than to push away so puffery is persuasive overall this persuasiveness requires that buyers have some privacy about their preferences so that the seller does not completely pander to them more generally the results show how comparative cheap talk by an expert to a decision maker can be credible and persuasive in standard discrete choice models used throughout marketing economics and other disciplines

strategic alliances as stackelberg cartels concept and equilibrium alliance structure abstract this paper analyzes incentives of oligopolistic firms to form strategic alliances and the effects of the endogenously derived alliance structure on product market competition a three stage game is considered in the first stage firms decide about forming strategic alliances in the second stage each alliance designs a strategic contract and in the third stage alliance members and outsiders compete in the product market it is shown how contractual terms about transfer prices and profit sharing in a production joint venture for an intermediate product may serve as an appropriate commitment device profits of alliance members and outsiders under different alliance structures are then determined based on this profit structure the alliance formation process is analyzed in a linear cournot oligopoly with at most five firms only one alliance forms and industry output is reduced with more than five firms an alliance structure with at least two alliances results if an equilibrium of the alliance formation game exists and in this case competition is enhanced

can the government talk cheap communication announcements and cheap talk a great deal of attention has recently been focused on communication in economic contexts while some models of credible announcements have been based on reputational forces or penalties imposed by third parties as in sobel 21 and cothren 4 several recent papers have addressed the possibility of communication through cheap talk that is talk in situations with no explicit penalties for deception perhaps the most prominent application of cheap talk in the literature is the recent model of federal reserve announcements by stein 22 this paper will show that cheap talk equilibria of the sort modeled by stein and others often depend in a fundamental way on implausible discontinuities in public responses to government announcements that is cheap talk equilibria are frequently only possible if certain infinitesimally small changes in government announcements are capable of causing large discontinuous changes in public expectations and behavior intuitively if public expectations are a continuous function of government announcements then the government can fine tune these expectations the government will therefore often be tempted to deviate from the cheap talk equilibrium announcements in order to manipulate expectations this causes the equilibrium to unravel discontinuous public reactions sometimes prevent these equilibria from unraveling because they convert continuous choice problems which allow manipulative fine tuning into discrete choice problems where such fine tuning is impossible these discontinuities are implausible however and this may often rule out cheap talk as a realistic model of governmental policy announcements 2

relying on the information of interested parties we investigate the conventional wisdom that competition among interested parties attempting to influence a decisionmaker by providing verifiable information elicits all relevant information we find that if the decisionmaker is strategically sophisticated and well informed about the relevant variables and about the preferences of the interested party or parties competition may be unnecessary to achieve this result if the decisionmaker is unsophisticated or not well informed competition is not generally sufficient if the interested parties interests are sufficiently opposed however or if the decisionmaker is seeking to advance the parties welfare then competition can reduce or even eliminate the decisionmaker s need for prior knowledge about the relevant variables and for strategic sophistication in other settings only the combination of competition among information providers and a sophisticated skepticism is sufficient to allow effective decisionmaking

information reliability and welfare a theory of coarse credit ratings abstract an enduring puzzle is why credit rating agencies cras use a few categories to describe credit qualities lying in a continuum even when ratings coarseness reduces welfare we model a cheap talk game in which a cra assigns positive weights to the divergent goals of issuing firms and investors the cra wishes to inflate ratings but prefers an unbiased rating to one whose inflation exceeds a threshold ratings coarseness arises in equilibrium to preclude excessive rating inflation we show that competition among cras can increase ratings coarseness we also examine the welfare implications of regulatory initiatives

lying for strategic advantage rational and boundedly rational misrepresentation of intentions starting from hendricks and mcafee s 2000 example of the allies decision to feint at calais and attack at normandy on d day this paper models misrepresentation of intentions to competitors or enemies allowing for the possibility of bounded strategic rationality and rational players responses to it yields a sensible account of lying via costless noiseless messages in many cases the model has generically unique pure strategy sequential equilibria in which rational players exploit boundedly rational players but are not themselves fooled in others the model has generically essentially unique mixed strategy sequential equilibria in which rational players strategies protect all players from exploitation