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Switching Costs in Infinitely Repeated Games

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Author Info
Barton L. Lipman () (Department of Economics, Boston University)
Ruqu Wang () (Queen’s University)

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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 [2000] do have analogs in the case of infinitely repeated games. We also discuss whether the results here or those in Lipman–Wang [2000] 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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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2005-021.

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Length: 45 pages
Date of creation: Jun 2005
Date of revision: Jan 2006
Handle: RePEc:bos:wpaper:wp2005-021

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  1. Dutta Prajit K., 1995. "A Folk Theorem for Stochastic Games," Journal of Economic Theory, Elsevier, vol. 66(1), pages 1-32, June. [Downloadable!] (restricted)
  2. Wen, Quan, 1994. "The "Folk Theorem" for Repeated Games with Complete Information," Econometrica, Econometric Society, vol. 62(4), pages 949-54, July. [Downloadable!] (restricted)
  3. Dutta Prajit K., 1995. "Collusion, Discounting and Dynamic Games," Journal of Economic Theory, Elsevier, vol. 66(1), pages 289-306, June. [Downloadable!] (restricted)
  4. Abreu, Dilip & Dutta, Prajit K & Smith, Lones, 1994. "The Folk Theorem for Repeated Games: A NEU Condition," Econometrica, Econometric Society, vol. 62(4), pages 939-48, July. [Downloadable!] (restricted)
  5. Fudenberg, Drew & Maskin, Eric, 1991. "On the dispensability of public randomization in discounted repeated games," Journal of Economic Theory, Elsevier, vol. 53(2), pages 428-438, April. [Downloadable!] (restricted)
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  6. Fudenberg, Drew & Levine, David, 1983. "Subgame-perfect equilibria of finite- and infinite-horizon games," Journal of Economic Theory, Elsevier, vol. 31(2), pages 251-268, December. [Downloadable!] (restricted)
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  7. Chakrabarti, Subir K., 1990. "Characterizations of the equilibrium payoffs of inertia supergames," Journal of Economic Theory, Elsevier, vol. 51(1), pages 171-183, June. [Downloadable!] (restricted)
  8. Lipman, Barton L. & Wang, Ruqu, 2000. "Switching Costs in Frequently Repeated Games," Journal of Economic Theory, Elsevier, vol. 93(2), pages 149-190, August. [Downloadable!] (restricted)
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  9. Benoit, Jean-Pierre & Krishna, Vijay, 1985. "Finitely Repeated Games," Econometrica, Econometric Society, vol. 53(4), pages 905-22, July. [Downloadable!] (restricted)
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