Credible Commitment, explained.
A credible commitment changes or constrains later incentives so that an announced action is believable when the relevant decision point arrives.
Why it happens
After entry, accommodation gives an incumbent 2 and fighting −2. An announcement changes nothing. Paying setup cost 3 installs an enforceable accommodation penalty of 6, making fighting preferable. A rival earning 3 if accommodated and −1 if fought then stays outside for zero; incumbent monopoly payoff is 6 minus setup cost.
A credible commitment changes or constrains later incentives so that an announced action is believable when the relevant decision point arrives.
Read the result
Work backward from the response after entry. A believable announcement must agree with the incentives at that later decision point.
A worked example
A threat with and without changed incentives
Choose announcement only. After entry, accommodation pays two while fighting pays minus two, so the rival anticipates accommodation and enters.
Reset and install the binding penalty. Accommodation would now pay minus four before setup cost, making fighting preferable at minus two.
The rival stays out and you receive six minus the setup cost of three. This result relies on the stipulated enforceability and known payoffs.
OPTIONAL DEEPER DETAILGo deeper: inside the model
Inside this model
After entry, accommodation gives an incumbent 2 and fighting −2. An announcement changes nothing. Paying setup cost 3 installs an enforceable accommodation penalty of 6, making fighting preferable. A rival earning 3 if accommodated and −1 if fought then stays outside for zero; incumbent monopoly payoff is 6 minus setup cost.
Where this idea is useful
A practical use
A commitment is different from a threat that a decision maker would prefer not to carry out later.
A common misconception
“A strongly worded promise changes the game by itself.”
Words can matter through beliefs and institutions, but this example changes credibility only when the later payoff structure changes. An empty threat remains unattractive to carry out.
What this explanation leaves out
- Payoffs, observability, rational response and enforceability are stipulated. Commitment can destroy options and harm outcomes in other settings; this is not advice to escalate a dispute.
Is giving up flexibility always beneficial?
No. Commitment may be expensive, mistaken or harmful under different payoffs. Its strategic value must be assessed rather than assumed from this one game.
Would the future action you announce still be your preferred action when the moment actually arrives?
Associated thinkers
Associations marked provisional are awaiting source review.
Further reading
Explore the original research or the teaching reference behind this experiment.