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Switching costs in infinitely repeated games

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  • Lipman, Barton L.
  • Wang, Ruqu

Abstract

We show that small switching costs can have surprisingly dramatic effects in infinitely repeated games if these costs are large relative to payoffs in a single period. This shows that the results in Lipman and Wang do have analogs in the case of infinitely repeated games [Lipman, B., Wang, R., 2000. Switching costs in frequently repeated games. J. Econ. Theory 93, August 2000, 149-190]. We also discuss whether the results here or those in Lipman-Wang imply a discontinuity in the equilibrium outcome correspondence with respect to small switching costs. We conclude that there is not a discontinuity with respect to switching costs but that the switching costs do create a discontinuity with respect to the length of a period.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 66 (2009)
Issue (Month): 1 (May)
Pages: 292-314

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Handle: RePEc:eee:gamebe:v:66:y:2009:i:1:p:292-314

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Web page: http://www.elsevier.com/locate/inca/622836

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References

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  1. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 533-54, May.
  2. Fudenberg, Drew & Levine, David, 1983. "Subgame-perfect equilibria of finite- and infinite-horizon games," Journal of Economic Theory, Elsevier, Elsevier, vol. 31(2), pages 251-268, December.
  3. Lipman, Barton L. & Wang, Ruqu, 2009. "Switching costs in infinitely repeated games," Games and Economic Behavior, Elsevier, Elsevier, vol. 66(1), pages 292-314, May.
  4. Dutta Prajit K., 1995. "A Folk Theorem for Stochastic Games," Journal of Economic Theory, Elsevier, Elsevier, vol. 66(1), pages 1-32, June.
  5. Benoit, Jean-Pierre & Krishna, Vijay, 1985. "Finitely Repeated Games," Econometrica, Econometric Society, Econometric Society, vol. 53(4), pages 905-22, July.
  6. Chakrabarti, Subir K., 1990. "Characterizations of the equilibrium payoffs of inertia supergames," Journal of Economic Theory, Elsevier, Elsevier, vol. 51(1), pages 171-183, June.
  7. Wen, Quan, 1994. "The "Folk Theorem" for Repeated Games with Complete Information," Econometrica, Econometric Society, Econometric Society, vol. 62(4), pages 949-54, July.
  8. Dutta Prajit K., 1995. "Collusion, Discounting and Dynamic Games," Journal of Economic Theory, Elsevier, Elsevier, vol. 66(1), pages 289-306, June.
  9. Drew Fudenberg & Eric Maskin, 1987. "On the Dispensability of Public Randomization in Discounted Repeated Games," Working papers 467, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Abreu, Dilip & Dutta, Prajit K & Smith, Lones, 1994. "The Folk Theorem for Repeated Games: A NEU Condition," Econometrica, Econometric Society, Econometric Society, vol. 62(4), pages 939-48, July.
  11. Lipman, Barton L. & Wang, Ruqu, 2000. "Switching Costs in Frequently Repeated Games," Journal of Economic Theory, Elsevier, Elsevier, vol. 93(2), pages 149-190, August.
  12. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  13. Barton L. Lipman & Ruqu Wang, 2006. "Switching Costs in Infinitely Repeated Games1," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2006-003, Boston University - Department of Economics.
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Cited by:
  1. Barton Lipman & Ruqu Wang, 2006. "Switching Costs in Infinitely Repeated Games," Working Papers, Queen's University, Department of Economics 1032, Queen's University, Department of Economics.

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