The Strategic Role of Nonbinding Communication

Abstract

This paper studies the conditions that improve bargaining power using threats and promises. We develop a model of strategic communication, based on the conflict game with perfect information, in which a noisy commitment message is sent by a better-informed sender to a receiver who takes an action that determines the welfare of both. Our model captures different levels of aligned-preferences, for which classical games such as stag hunt, hawk-dove, and prisoner’s dilemma are particular cases. We characterise the Bayesian perfect equilibrium with nonbinding messages under truth-telling beliefs and sender’s bargaining power assumptions. Through our equilibrium selection we show that the less conflict the game has, the more informative the equilibrium signal is and less credibility is necessary to implement it.