SIGNALING REVERSAL

The case of a strong contestant who has no direct way to demonstrate i ts strength and may have to send a costly signal to prove it appears f requently in the signalling literature. We examine what occurs in sign alling 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 equilibri um in which the signal sent by the strong contestants, though costly, is also quite rewarding: it increases their payoff level over and abov e the level attained when their strength is common knowledge.