Asymmetric and endogenous within-group communication in competitive coordination games

Abstract

Within-group communication in competitive coordination games has been shown to increase competition between groups and lower efficiency. This study further explores potentially harmful effects of communication, by addressing the questions of (i) asymmetric communication and (ii) the endogenous emergence of communication. Our theoretical analysis provides testable hypotheses regarding the effect of communication on competitive behavior and efficiency. We test these predictions using a laboratory experiment. The experiment shows that although asymmetric communication is not as harmful as symmetric communication, it leads to more aggressive competition and lower efficiency relative to the case when neither group can communicate. Moreover, groups vote to endogenously open communication channels even though this leads to lower payoffs and efficiency.JEL Classifications: C70, D72, H41

Conditional cooperation in group contests

“…Group contests are pervasive, including rent-seeking and lobbying, innovation tournaments and R&D races or sports competitions. The experimental group contest literature consistently finds that average effort level (though often showing a declining pattern) is significantly higher than the equilibrium prediction, a phenomenon known as overexpenditure, see for instance [16][17][18][19][20][21][22][23]. Some explanations provided by the literature are pure joy of winning [24][25][26][27], bounded rationality [28][29][30], relative payoff maximization [31] and social identity [19].…”

Winner-take-all and proportional-prize contests: Theory and experimental results

“…Almost without exception, experimental studies find puzzling and systematic anomalies -most prominently that contestants incur expenditures that exceed Nash equilibrium levels and that expenditures are widely dispersed (Sheremeta, 2013(Sheremeta, , 2015. Although over-expenditure is sometimes desirable (Morgan and Sefton, 2000), typically it reduces individual payoffs and decreases economic welfare (Sheremeta and Zhang, 2010;Cason et al, 2012Cason et al, , 2017. Moreover, the stark win-or-lose structure of payoffs results in a highly inequitable distribution of economic welfare (Frank and Cook, 1996).…”

Coopetition in Group Contest

“…Nalbantian and Schotter, 1997;Van Dijk et al, 2001) is that with proportional or egalitarian sharing rule contests between groups lead to high individual effort and little freeriding. More recent experimental studies (Abbink et al, 2010;Ahn et al, 2011;Cason et al, 2012Cason et al, , 2017Leibbrandt and Sääksvuori, 2012;Ke et al, 2013Ke et al, , 2015Eisenkopf, 2014;Sheremeta, 2011;Brookins et al, 2015;Bhattacharya, 2016;Chowdhury et al, 2016) also consistently find that average effort level (though often showing a declining pattern) is significantly higher than the equilibirum prediction. Sheremeta (2013) reports based on 30 studies that the median over-expenditure is 72%.…”

“…Most experiments use the egalitarian rule (for instance Nalbantian and Schotter, 1997;Abbink et al, 2010Abbink et al, , 2012Ahn et al, 2011;Sheremeta, 2011;Cason et al, 2012Cason et al, , 2017. Note that even this rule provides incentives for free-riding, because a participant would receive the same share of the prize upon making zero contribution than other members of the group who exerts a positive level of effort.…”