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Ram Orzach and Yair Tauman
International Economic Review
Vol. 37, No. 2 (May, 1996), pp. 453-464
Published by: Wiley for the Economics Department of the University of Pennsylvania and Institute of Social and Economic Research, Osaka University
Stable URL: http://www.jstor.org/stable/2527332
Page Count: 12
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The case of a strong contestant who has no direct way to demonstrate its strength and may have to send a costly signal to prove it appears frequently in the signalling literature. We examine what occurs in signalling models with two or more contestants. The receiver of the signal may serve as a credible coordinator who punishes the senders for not collaborating with each other, the result being a separating equilibrium in which the signal sent by the strong contestants, though costly, is also quite rewarding: it increases their payoff level over and above the level attained when their strength is common knowledge.
International Economic Review © 1996 Economics Department of the University of Pennsylvania