Only the illusion of possible collusion? Cheap talk and similar goals: Some experimental evidence

Firms routinely engage in public communications that are available to vario us constituencies. including competitors. In a laboratory experiment with p risoner's dilemma payoffs, the authors investigate the effect of one form o f these communications-cheap talk signals. statements that are costless, no nbinding, and nonverifiable and do nor directly affect the payoffs for eith er party. The authors find that only competitors that perceive that they sh are goals for a joint. coordinated outcome correctly update their beliefs a bout their competitor's next move on the basis of cheap talk signals. The a uthors contend that the conditions for cheap talk to work may be so rare th at cheap talk is more likely to fall on deaf ears than to result in collusi on. The authors suggest implications for managers and public policymakers a s well as areas for further research.