Endogenous Communication and Tacit Coordination in Market Entry Games – An Explorative Experimental Study

Abstract

This paper explores the effects of communication in market entry games experimentally. It is shown that communication increases coordination success substantially and generate inferior outcomes for consumers when market entry costs are symmetric. Such effects are not observed when costs are asymmetric, since asymmetries provide a tacit coordination cue used by experienced players (as a substitute to communication). It is also shown that although communication is used both to achieve market domination equilibria and cooperative market separating equilibria, the latter type of communication is much more common and successful.

Keywords: Communication, Market entry, Coordination

JEL Classification: C72, C91, D43, K21, L41