Preopening and Equilibrium Selection

Tinbergen Institute Discussion Paper 10-023/2

53 Pages Posted: 23 Feb 2010  

Riccardo Calcagno

EMLYON Business School

Stefano Lovo

HEC Paris - Finance Department

Date Written: February 16, 2010

Abstract

We introduce a form of pre-play communication that we call "preopening". During the preopening, players announce their tentative actions to be played in the underlying game. Announcements are made using a posting system which is subject to stochastic failures. Posted actions are publicly observable and players payoffs only depend on the opening outcome, i.e. the action profile that is posted at the end of the preopening phase. We show that when the posting failures hit players idiosyncratically all equilibria of the preopening game lead to the same opening outcome that corresponds to the most "sensible" pure Nash equilibrium of the underlying game. By contrast preopening does not operate an equilibrium selection when posting failure hits players simultaneously.

Keywords: Preopening, equilibrium selection, bargaining, cheap talk

JEL Classification: C72, C73, C78, G1

Suggested Citation

Calcagno, Riccardo and Lovo, Stefano, Preopening and Equilibrium Selection (February 16, 2010). Tinbergen Institute Discussion Paper 10-023/2. Available at SSRN: https://ssrn.com/abstract=1557137 or http://dx.doi.org/10.2139/ssrn.1557137

Riccardo Calcagno (Contact Author)

EMLYON Business School ( email )

23 Avenue Guy de Collongue
Ecully, 69132
France
+33(0)4 78337739 (Phone)

HOME PAGE: http://sites.google.com/site/rcalcagnopersonalwebpage/

Stefano Lovo

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

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