This is Professor A Michael Spence's basic contribution to the signal model. The starting point of this paper is MBA employment. At that time, he was a doctoral student at Harvard University. He observed that MBA students were nothing before entering Harvard University, and they could earn several times or even ten times more money than professors after going out. He couldn't help asking, "Why?" ; "Is Harvard education really so powerful?" . The result of his research is that education has the function of signal transmission. (Of course, education can also be productive. This paper is based on his doctoral thesis: Market Signal: Information Structure and Related Phenomena of the Employment Market (doctoral thesis, Harvard University Press, 1972), and the tutor is a well-known professor Kenneth J. Arrow.
Cho and Kreps, Signal Game and Stable Equilibrium, Economics Quarterly, 1987.
It puts forward a refinement criterion for equalization, that is, an intuitive criterion, which can be used in some signal transmission strategies to obtain a unique equalization. The study of economics is most afraid of multiple equilibria. The purpose of economics is to explain and predict. If there are multiple equilibria, which equilibrium result should be used to explain and predict?
Mailath, incentive compatibility in signal games with continuous types, econometrics, 1987.
This article is very technical and describes the sufficient conditions for the existence of separation equilibrium in the signal transmission game. He considered the case that private information is a continuum and obeys continuous distribution. The continuum refers to the interval. For example, if the value of my watch is my private information, which is unknown to everyone, except that it may be any value between 160 yuan and 180 yuan, then my private information is a continuum.
Crawford and Suo Beier, Strategic Information Transmission, Econometrics, 1982.
Spencer's signal model emphasizes the importance of signal transmission cost in signal transmission countermeasures. However, Crawford and Suo Beier's model assumes that the cost of sending signals is zero, and people can send signals without cost. This model is called cheap talk game. Many people use this model to study political processes, such as elections and legislation.
Milgrom and Roberts, Extreme Pricing and Entry under Incomplete Information: An Equilibrium Analysis, Econometrics, 1982.
This model verifies Bain's "extreme pricing" conjecture with signal game. We know that Bain can be called the father of industrial organization. The work of Bain and his teacher Edward Mei Sen has made industrial organization a research field and formed a research paradigm of "structure-behavior-performance". The so-called "restrictive pricing" conjecture means that when the incumbent enterprise faces the entry of potential competitors, it may set a low price to curb its entry.
James Friedman's works point out that under the condition of complete information, restrictive pricing is impossible. This is because, at this time, potential entrants know all the information related to profitability, such as market conditions and the cost of existing enterprises. In this way, the cost of a given incumbent is very low, and potential competitors will lose in the market competition if they enter. Then, the incumbent will set the monopoly price without thinking, and potential entrants will not dare to enter. In this case, there is no restrictive pricing. On the other hand, if the incumbent's cost is so high that the entry of potential competitors is always profitable, then the incumbent will set a monopoly price without thinking, because obviously low prices can't prevent entry.
Milgrom and Roberts assume that potential entrants don't know the cost of incumbents, and the price of incumbents plays a role in transmitting cost signals. In such a signaling strategy, they proved the existence of restrictive pricing. Firstly, this paper briefly reviews the work of Bain and Friedman. The second part illustrates the existence of restrictive pricing with two examples; The third part is the discussion of the concept of equilibrium; The fourth part is the conclusion. Relatively speaking, this paper is technically simple, but its conclusion is of great significance to the theoretical research of industrial organization.
The competition of enterprises can be roughly divided into three stages. In the short term, the price is the easiest for enterprises to adjust; In the medium term, enterprises can adjust product structure. In the long run, enterprises can invest in R&D to produce new products and reduce the cost of existing products. It should be said that the price is the least promising, because the price changes every day; However, product structure adjustment and R&D investment are different. They are not as simple as changing the price tag. Milgrom and Roberts believe that restrictive pricing exists under incomplete information, which may scare away potential competitors; Thus, under the condition of incomplete information, the most changeable variable-price actually has the function of commitment.