Signaling Private Choices

57 Pages Posted: 3 Nov 2012

See all articles by Younghwan In

Younghwan In

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Julian Wright

National University of Singapore (NUS) - Department of Economics

Date Written: October 1, 2012

Abstract

For a number of applications of signaling, it is sometimes more reasonable to assume that senders rather than nature choose their unobserved features (e.g. their private choices of quality). In other situations, it makes no sense for nature to determine senders' unobserved features (e.g. their private choices of capacity, investment, contract or price). We identify a general class of such endogenous signaling problems. We provide a relatively straightforward method to characterize the reasonable equilibria for these problems. A simple class of monotone endogenous signaling games is characterized to illustrate some interesting properties of these equilibria. We also explain how to apply our framework to more complicated settings, including to situations which are not usually considered as signaling problems (e.g. to loss-leader pricing and to the opportunism problem that arises in vertical contracting).

Keywords: signaling, invariance, loss leader, opportunism, announcements

JEL Classification: C72, D82, L10

Suggested Citation

In, Younghwan and Wright, Julian, Signaling Private Choices (October 1, 2012). KAIST College of Business Working Paper Series No. 2012-010, Available at SSRN: https://ssrn.com/abstract=2169211 or http://dx.doi.org/10.2139/ssrn.2169211

Younghwan In (Contact Author)

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

Julian Wright

National University of Singapore (NUS) - Department of Economics ( email )

AS2 Level 6, 1 Arts Link
Singapore 117570
Singapore
6568743941 (Phone)
6567752646 (Fax)

HOME PAGE: http://profile.nus.edu.sg/fass/ecsjkdw/

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