Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2006:12: Endogenous Communication and Tacit Coordination in Market Entry Games - An explorative experimental study

Ola Andersson (), Hans Carlsson () and Håkan Holm ()
Additional contact information
Ola Andersson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Hans Carlsson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Håkan Holm: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This paper explores experimentally the effects of costly communication possibilities in market entry games. It is shown that these effects depend on whether entry costs are symmetric or asymmetric. In the former, but not the latter case, communication possibilities increase coordination success substantially and are likely to generate inferior outcomes for consumers. Furthermore, cost asymmetries provide a tacit coordination cue that is robust to changes in the game and is used by experienced players as a substitute to communication. It is also shown that although communication opens up for aggressive market domination strategies, such strategies are not used often successful.

Keywords: Communication; Market Entry; Coordination

JEL-codes: C72; C91; D43; K21; L41

47 pages, May 3, 2006

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