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Title Cheap Talk by Two Senders in the Presence of Network Externalities
   
Author Jeahan Jung (POSTECH) and Jeong-Yoo Kim (Kyung Hee University)
   
Volume 35 Number 1
       
Pages 5-24 
       
Keywords Cheap Talk, Cross-checking Strategy, Fully Revealing Equilibrium,
       
Abstract We develop a model of cheap talk with two senders in the presence of network
externalities, such that their utility functions are increasing in the network size. We first
show that, if there is no noise in the private information received by each sender, the full
information is revealed by the harshest cross-checking strategies, that is, strategies to punish
the senders unless their messages exactly coincide. Then, we prove that, even with a small
noise, cross-checking strategies cannot induce full revelation if the utility functions of senders
are linear in the network size, whereas full revelation is possible if utility functions are
strictly concave. Finally, we show that a CARA (constant absolute risk aversion) utility
function of senders is the necessary and sufficient condition for the existence of a fully
revealing equilibrium, which is supported by the cross-checking strategy with a positive
confidence interval independent of each senders private information.
   
File KER-20190101-35-1-09.pdf
   
 
 
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