The value of cheap-talk and costly signals in coordinating market entry decisions.

Abstract

Signaling present itselfs when a firm attempts to indicate, truthfully or not, its intended course of action. Competitors ofttimes use signaling in market access situations to coordinate actions, or possibly to prevent entry by other firms. This paper examines the value of cheap talk and high-priced signaling in a large cluster market entry game. Eighty controls twenty in each of four clusters participated in a computer-controlled decision making experiment. After learning the capacity of the market, make submissives were given an opportunity to signal their intentions to pierce or stay out.