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A note on commitment when there are errors in communication

Author

Listed:
  • Anders Poulsen

    (School of Economics, University of East Anglia)

  • Odile Poulsen

    (School of Economics, University of East Anglia)

Abstract

In this note we analyze the viability of a commitment strategy when there are errors in communication. We consider an entry deterrence game where with a certain probability the Incumbent's decision is either perfectly observed by the Potential Intruder or, with complementary probability, nothing is observed. We find that in equilibrium the Incumbent benefits as much from a decision to accommodate entry as a commitment to fight entry being observed with sufficiently high probability by the potential intruder. Indeed, there is an equilibrium where the Incumbent commits to fight entry with probability one even when this action is observed with zero probability.

Suggested Citation

  • Anders Poulsen & Odile Poulsen, 2008. "A note on commitment when there are errors in communication," Economics Bulletin, AccessEcon, vol. 3(74), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-08c70056
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    File URL: http://www.accessecon.com/pubs/EB/2008/Volume3/EB-08C70056A.pdf
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    Cited by:

    1. Tanja Hörtnagl & Rudolf Kerschbamer, 2014. "How the Value of Information Shapes the Value of Commitment Or: Why the Value of Commitment Does Not Vanish," Working Papers 2014-03, Faculty of Economics and Statistics, Universität Innsbruck.

    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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