Conversation with Secrets

Posted: 30 Sep 2016

See all articles by Bernhard Ganglmair

Bernhard Ganglmair

ZEW – Leibniz Centre for European Economic Research - Junior Research Group Competition and Innovation; University of Mannheim - Department of Economics; Mannheim Centre for Competition and Innovation (MaCCI)

Emanuele Tarantino

University of Mannheim - Department of Economics; Tilburg Law and Economics Center (TILEC)

Date Written: May 7, 2014

Abstract

We analyze the sustainability of a conversation when one agent might be endowed with a piece of private information that affects the payoff distribution to its benefit. Such a secret can compromise the sustainability of conversation. Even without an obligation, the secret holder will disclose its secret if it prevents preemptive termination of the conversation. The non-secret holder lacks this possibility and stops the conversation. Competition and limited effectiveness of the conversation amplify this result of early disclosure and render the conversation process less sustainable. We discuss policy and managerial implications for industry standard development and joint ventures.

Keywords: asymmetric information, conversation, communication, disclosure, joint ventures, secrets, signaling, standard setting organizations

JEL Classification: D71, D83, L15, L24, O32, O34

Suggested Citation

Ganglmair, Bernhard and Tarantino, Emanuele, Conversation with Secrets (May 7, 2014). RAND Journal of Economics, Vol. 45, No. 2, 2014. Available at SSRN: https://ssrn.com/abstract=2845507

Bernhard Ganglmair (Contact Author)

ZEW – Leibniz Centre for European Economic Research - Junior Research Group Competition and Innovation ( email )

L7,1
Mannheim, 68161
Germany

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Mannheim Centre for Competition and Innovation (MaCCI) ( email )

L 7, 1
Mannheim, 68131
Germany

Emanuele Tarantino

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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