An Application of Global Games to Signalling Models
IEW Working Paper No. 223
23 Pages Posted: 19 Jan 2005
Date Written: May 2006
In a first attempt to apply the global games methodology to signalling games, Ewerhart and Wichardt (2004) analyse a beer-quiche type signalling game with additional imperfect information about the preferences of the receiver. Their approach allows them to dismiss the unreasonable pooling on quiche equilibrium. This paper revisits their example and discusses how an extension of the set of strategies for the sender affects the analysis. Interestingly, for an extended beer-quiche game, a unique equilibrium is selected while two equilibria are consistent with the Intuitive Criterion (Cho and Kreps, 1987). Apart from the technical analysis, potential economic applications of the results, e.g. in a context of limit pricing and entry deterrence, are indicated.
Keywords: Global Games, Signalling, Equilibrium Selection, Intuitive Criterion, Limit Pricing
JEL Classification: C72, L11
Suggested Citation: Suggested Citation