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Switching Costs in Infinitely Repeated Games

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  • Barton Lipman

    ()
    (Boston University)

  • Ruqu Wang

    ()
    (Queen's University)

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 and 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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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1032.pdf
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1032.

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Length: 45 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:qed:wpaper:1032

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Keywords: infinite horizon; repeated games; switching costs; Folk Theorem;

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References

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  1. Wen, Quan, 1994. "The "Folk Theorem" for Repeated Games with Complete Information," Econometrica, Econometric Society, Econometric Society, vol. 62(4), pages 949-54, July.
  2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  3. 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.
  4. 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.
  5. Benoit, Jean-Pierre & Krishna, Vijay, 1985. "Finitely Repeated Games," Econometrica, Econometric Society, Econometric Society, vol. 53(4), pages 905-22, July.
  6. Dutta Prajit K., 1995. "Collusion, Discounting and Dynamic Games," Journal of Economic Theory, Elsevier, vol. 66(1), pages 289-306, June.
  7. 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.
  8. Drew Fudenberg & David K. Levine, 1983. "Subgame-Perfect Equilibria of Finite- and Infinite-Horizon Games," Levine's Working Paper Archive 219, David K. Levine.
  9. Dutta Prajit K., 1995. "A Folk Theorem for Stochastic Games," Journal of Economic Theory, Elsevier, vol. 66(1), pages 1-32, June.
  10. Chakrabarti, Subir K., 1990. "Characterizations of the equilibrium payoffs of inertia supergames," Journal of Economic Theory, Elsevier, vol. 51(1), pages 171-183, June.
  11. Barton L. Lipman & Ruqu Wang, 1997. "Switching Costs in Frequently Repeated Games," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1190, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Barton L. Lipman & Ruqu Wang, 2006. "Switching Costs in Infinitely Repeated Games1," Boston University - Department of Economics - Working Papers Series WP2006-003, Boston University - Department of Economics.
  13. 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.
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Cited by:
  1. Lipman, Barton L. & Wang, Ruqu, 2009. "Switching costs in infinitely repeated games," Games and Economic Behavior, Elsevier, vol. 66(1), pages 292-314, May.

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