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Quantitative Marketing and Economics

Erschienen in:

01.09.2009

Communication strategy in partnership selection

verfasst von: Dmitri Kuksov

Erschienen in: Quantitative Marketing and Economics | Ausgabe 3/2009

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Abstract

This paper explores the communication and choice strategies of economic agents deciding on a partnership, where agents are uncertain about their payoffs, and payoffs of each agent depend on and are partly known to the potential partner. Business examples of such decisions include mergers, acquisitions, distribution channel partners, as well as manufacturing and brand alliances. Dating and marriage partner selection are also natural examples of this game. The paper shows that (a) when communication is informative, the communication strategy as a function of the expected payoff of the partnership involves pretending fit when expected payoff is high, pretending misfit when expected payoff is low, and telling the truth in the intermediate range, and (b) the condition for informativeness of communication is that the distribution of payoffs has thin tails. Furthermore, the paper shows that the possibility of communication, even when this communication is not restricted to be truthful, can decrease the expected payoff for both the sender and the receiver; in particular, it can decrease the expected social welfare.

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This example is simplified and is given for illustration only; other expectations can also be consistent in this example. The formal model will lead to unique rational expectations derived from Bayes rule in all cases.

The assumption of only one population being able to talk is needed for the analytical tractability of communication strategies. Section 2.4 discusses the robustness of implications under two-way communication.

See Farrel and Rabin (1996) for a further survey and discussion of cheap talk literature.

I make no assumptions on a, and in fact, one could also assume a = 1 to reduce the number of parameters in the model. However, this parameter will help us to see which part of the payoff affects which part in the strategies, and therefore, will provide greater intuition for the results. Separating the A _k part of the payoff and the discrete distribution of the correlated part of the payoffs, makes the model tractable.

To be consistent with the literature, I will sometimes refer to Agent 1 as the sender and to Agent 2 as the receiver.

Section 3 discusses the possibility of Agent 2 also being able to send a message.

The intuition for the results will not change if we would not model where the signals and the common value component are coming from and just assumed that, for example, the common value can take one of the three values and agents would be receiving i.i.d. noisy signals on what the value is.

It is also easy to construct a two-point distribution of A for which condition 23 does not hold.

If agents communicate sequentially, it is the same for the agent communicating last, and therefore, his/her communication strategy as a function of expected payoff is qualitatively the same as the communication strategy of Agent 1 in the main model.

For a more formal discussion, see Kuksov (2007).

This immediately follows from the Eqs. 17, 18, and 22 in the Appendix.

One could expect that the right hand side of definition of R _f, after substitution, would depend on R _f, since the functions that are substituted depend on it. This would give a recursive equation that can be solved for R _f. In our case, however, after simplification, R _f completely cancels from the right hand side.

This is consistent with Baliga and Morris (2002), who derive a similar result when the communication is about the actions and the communication effect is in coordination on the equilibrium actions rather than about the player type.

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Titel: Communication strategy in partnership selection
verfasst von: Dmitri Kuksov
Publikationsdatum: 01.09.2009
Verlag: Springer US
Erschienen in: Quantitative Marketing and Economics / Ausgabe 3/2009
Print ISSN: 1570-7156
Elektronische ISSN: 1573-711X
DOI: https://doi.org/10.1007/s11129-009-9070-3