Only Time Will Tell: Credible Dynamic Signaling

29 Pages Posted: 18 Sep 2020

See all articles by Egor Starkov

Egor Starkov

University of Copenhagen - Department of Economics

Date Written: July 19, 2020

Abstract

This paper explores a model of dynamic signaling without commitment. It is known that separating equilibria do not exist if the sender cannot commit to future costly actions, since no single action can have enough weight to be an effective signal. This paper, however, shows that informative and payoff-relevant signaling can occur even without commitment and without resorting to unreasonable off-path beliefs. Such signaling can only happen through attrition, when the weakest type mixes between revealing own type and pooling with the stronger types. The possibility of full information revelation in the limit hence depends crucially on the assumptions about the state space. We illustrate the results by exploring a model of dynamic price signaling and show that prices may be informative of product quality even if the seller cannot commit to future prices, with both high and low prices being able to signal high quality.

Keywords: dynamic signaling, repeated signaling, reputation, attrition

JEL Classification: C73, D82, D83, L15

Suggested Citation

Starkov, Egor, Only Time Will Tell: Credible Dynamic Signaling (July 19, 2020). Available at SSRN: https://ssrn.com/abstract=3668132 or http://dx.doi.org/10.2139/ssrn.3668132

Egor Starkov (Contact Author)

University of Copenhagen - Department of Economics ( email )

Ă˜ster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

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