Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex Ante Price

We consider a frictional two-sided matching market in which one side uses public cheap talk announcements so as to attract the other side. We show that if the first-price auction is adopted as the trading protocol, then cheap talk can be perfectly informative, and the resulting market outcome is efficient, constrained only by search frictions. We also show that the performance of an alternative trading protocol in the cheap-talk environment depends on the level of price dispersion generated by the protocol: If a trading protocol compresses (spreads) the distribution of prices relative to the first-price auction, then an efficient fully revealing equilibrium always (never) exists. Our results identify the settings in which cheap talk can serve as an efficient competitive instrument, in the sense that the central insights from the literature on competing auctions and competitive search continue to hold unaltered even without ex ante price commitment.

A Case of Framing Effects: The Elicitation of Time Preferences.

We compare three methods for the elicitation of time preferences in an experimental setting: the Becker-DeGroot-Marschak procedure (BDM); the second price auction; and the multiple price list format. The first two methods have been used rarely to elicit time preferences. All methods used are perfectly equivalent from a decision theoretic point of view, and they should induce the same ‘truthful’ revelation i dominant strategies. In spite of this, we find that framing does matter: the money discount rates elicited with the multiple price list tend to be higher than those elicited with the other two methods. In addition, our results shed some light on attitudes towards time, and they permit a broad classification of subjects depending on how the size of the elicited values varies with the time horizon.