The folk theorem for repeated games with observation costs
AbstractThis paper studies repeated games with private monitoring where players make optimal decisions with respect to costly monitoring activities, just as they do with respect to stage-game actions. We consider the case where each player can observe other players' current-period actions accurately only if he incurs a certain level of disutility. In every period, players decide whether to monitor other players and whom to monitor. We show that the folk theorem holds for any finite stage game that satisfies the standard full dimensionality condition and for any level of observation costs. The theorem also holds under general structures of costless private signals and does not require explicit communication among the players. Therefore, tacit collusion can attain efficient outcomes in general repeated games with private monitoring if perfect private monitoring is merely feasible, however costly it may be.
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Bibliographic InfoPaper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0405-12.
Length: 37 pages
Date of creation: 2004
Date of revision:
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Other versions of this item:
- Eiichi Miyagawa & Yasuyuki Miyahara & Tadashi Sekiguchi, 2004. "The Folk Theorem for Repeated Games with Observation Costs," KIER Working Papers 597, Kyoto University, Institute of Economic Research.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L - Industrial Organization
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- Flesch, János & Perea, Andrés, 2007. "Repeated Games with Voluntary Information Purchase," Research Memorandum 057, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Flesch, János & Perea, Andrés, 2009. "Repeated games with voluntary information purchase," Games and Economic Behavior, Elsevier, vol. 66(1), pages 126-145, May.
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