Communication and Commitment in Contests

Abstract

Players often engage in high-profile public communications to demonstrate their confidence of winning before they carry out actual competitive activities. This paper investigates players' incentives to conduct such pre-contest communication. We assume that a player suffers a cost when he sends a "message of confidence," but misses his stated goal thereafter. However, this cost increases the player's incentive to win the competition and allows him to commit to a tougher stance in the subsequent contest. In a formal model, we show that communicating confidence may be beneficial for several reasons. First, it may discourage the opponent, and deter his entry into the contest and second, it may function as an information transmission device that signals private information about the competitor's own strength. We further show that such communications also lead to rich strategic trade-offs in the players' incentives to supply their effort and may help improve the allocative efficiency of the contest.

Keywords: competition, signaling, communication, entry deterrence

JEL Classification: C72, D61, D82, D83, O31