Signaling strategies in competitive interaction: Building reputations and hiding the truth

The authors develop a conceptual framework of how managers interpret compet itors' signals over time in various market contexts. From the framework, th e authors generate hypotheses about the relative effectiveness of signaling strategies used by firms in different market contexts. The authors conduct ed two empirical studies involving a repeated entry-pricing game to test th e hypotheses. The results of Study 1 show that the entrant's perceptions of the aggressiveness of the incumbent depend on the focus and strength of th e incumbent's signals. The results of Study 2 show that the strength of the entrant's responses to the incumbent's signals depends on the incumbent's use of bluffs and the cost of information about the factors driving the inc umbent's signals. The implications of these findings for how firms should s ignal to achieve such strategic objectives as revealing or concealing infor mation, developing a desired reputation, and influencing competitors' respo nses over time are discussed. The authors conclude by discussing the limita tions of the article and its implications for further research.