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Communication & competition

Published online by Cambridge University Press:  14 March 2025

Jacob K. Goeree  and
Jingjing Zhang
Jacob K. Goeree
Affiliation:
Department of Economics, University of Zürich, Blümlisalpstrasse 10, 8006 Zürich, Switzerland Department of Economics, University of Technology Sydney, 1-59 Quay Street, Haymarket, NSW, Sydney, Australia
Jingjing Zhang*
Affiliation:
Department of Economics, University of Zürich, Blümlisalpstrasse 10, 8006 Zürich, Switzerland
*
[email protected]
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Abstract

Charness and Dufwenberg (Am. Econ. Rev. 101(4):1211–1237, 2011) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their main finding and extend their design to include competition between agents. We find that communication and competition act as “substitutes:” communication raises efficiency in the absence of competition but not with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories.

Keywords

Cheap talkAdverse selectionCompetitionGuilt aversionLie aversionInequality aversionReciprocity

JEL classification

C92: Laboratory, Group Behavior
Type
Original Paper
Information
Experimental Economics , Volume 17 , Issue 3 , September 2014 , pp. 421 - 438
Copyright
Copyright © 2013 Economic Science Association

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Footnotes

Electronic Supplementary Material The online version of this article (doi:https://doi.org/10.1007/s10683-013-9376-6) contains supplementary material, which is available to authorized users.

We gratefully acknowledge financial support from the Swiss National Science Foundation (SNSF 135135) and the European Research Council (ERC Advanced Investigator Grant, ESEI-249433). We thank Gary Charness and Martin Dufwenberg for sharing their data and valuable insights and Kremena Valkanova for excellent research assistance. We benefitted from helpful comments made by the special editor, Tore Ellingsen, two anonymous referees, as well as seminar participants at the Economic Science Association meetings in Tucson (November 2010) and the “Communication in Experimental Games” workshop in Zürich (June 2011).

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