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When the Punishment Must Fit the Crime: Remarks on the Failure of Simple Penal Codes in Extensive-Form Games

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Author Info

  • George J. Mailath

    ()
    (Department of Economics, University of Pennsylvania)

  • Volker Nocke

    ()
    (Department of Economics, University of Pennsylvania)

  • Lucy White

    ()
    (Finance Unit, Harvard Business School)

Abstract

In repeated normal-form games, simple penal codes (Abreu 1986, 1988) permit an elegant characterization of the set of subgame-perfect outcomes. We show that the logic of simple penal codes fails in repeated extensive-form games. We provide two examples illustrating that a subgame-perfect outcome may be supported only by a profile with the property that the continuation play after a deviation is tailored not only to the identity of the deviator, but also to the nature of the deviation.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 04-039.

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Length: 14 pages
Date of creation: 14 Oct 2004
Date of revision:
Handle: RePEc:pen:papers:04-039

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Keywords: Simple Penal Code; Subgame Perfect Equilibrium; Repeated Extensive Game; Optimal Punishment;

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References

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  1. Volker Nocke & Lucy White, 2007. "Do Vertical Mergers Facilitate Upstream Collusion?," American Economic Review, American Economic Association, American Economic Association, vol. 97(4), pages 1321-1339, September.
  2. Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(5), pages 709-24, October.
  3. Rubinstein Ariel & Wolinsky Asher, 1995. "Remarks on Infinitely Repeated Extensive-Form Games," Games and Economic Behavior, Elsevier, Elsevier, vol. 9(1), pages 110-115, April.
  4. 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.
  5. Sorin Sylvain, 1995. "A Note on Repeated Extensive Games," Games and Economic Behavior, Elsevier, Elsevier, vol. 9(1), pages 116-123, April.
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Cited by:
  1. Stefan Buehler & Dennis L. Gaertner, 2009. "Making Sense of Non-Binding Retail-Price Recommendations," SOI - Working Papers, Socioeconomic Institute - University of Zurich 0902, Socioeconomic Institute - University of Zurich.
  2. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion? Second Version," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 05-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 08 Mar 2005.
  3. Nocke, Volker & White, Lucy, 2010. "Vertical Merger, Collusion, and Disruptive Buyers," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7722, C.E.P.R. Discussion Papers.

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