Eiichi Miyagawa () (Department of Economics, Columbia University) Yasuyuki Miyahara () (Graduate School of Business Administration, Kobe University) Tadashi Sekiguchi () (Institute of Economic Research, Kyoto University)
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This 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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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number
597.
Find related papers by JEL classification: 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 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 L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
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