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Communication and Cooperation in Markets

Author

Listed:
  • S. Nageeb Ali
  • David A. Miller
Abstract
Many markets rely on traders truthfully communicating who has cheated in the past and ostracizing those traders from future trade. This paper investigates when truthful communication is incentive compatible. We find that if each side has a myopic incentive to deviate, then communication incentives are satisfied only when the volume of trade is low. By contrast, if only one side has a myopic incentive to deviate, then communication incentives do not constrain the volume of supportable trade. Accordingly, there are strong gains from structuring trade so that one side either moves first or has its cooperation guaranteed by external enforcement.

Suggested Citation

  • S. Nageeb Ali & David A. Miller, 2022. "Communication and Cooperation in Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 14(4), pages 200-217, November.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:4:p:200-217
    DOI: 10.1257/mic.20200296
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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