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Experiment 1 demonstrated that from the earliest moments of processing, addressees interpreted referring expressions with respect to referential domains constrained by the conversation. Analysis of eye movements during the conversation showed elimination of standard competition effects seen with scripted language. Results from Experiment 2 pinpointed two pragmatic factors responsible for restriction of the referential domains used by speakers to design referential expressions and demonstrated that the same factors predict whether addressees consider local competitors to be potential referents during online interpretation of the same expressions. 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