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Switching Costs in Frequently Repeated Games

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  • Lipman, Barton L.
  • Wang, Ruqu

Abstract

We show that the standard results for finitely repeated games do not survive the combination of two simple variations on the usual model. In particular, we add a small cost of changing actions and consider the effect of increasing the frequency of repetitions within a fixed period of time. We show that this can yield multiple subgame perfect equilibria in games like the Prisoners' Dilemma which normally have a unique equilibrium. Also, it can yield uniqueness in games which normally have multiple equilibria. For example, in a two by two coordination game, if the Pareto dominant and risk dominant outcomes coincide, the unique subgame perfect equilibrium for small switching costs and frequent repetition is to repeat this outcome every period. Also, in a generic Battle of the Sexes game, there is a unique subgame perfect equilibrium for small switching costs.
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Suggested Citation

  • Lipman, Barton L. & Wang, Ruqu, 2000. "Switching Costs in Frequently Repeated Games," Journal of Economic Theory, Elsevier, vol. 93(2), pages 149-190, August.
  • Handle: RePEc:eee:jetheo:v:93:y:2000:i:2:p:149-190
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    Citations

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    Cited by:

    1. Dutta, Rohan & Ishii, Ryosuke, 2016. "Dynamic commitment games, efficiency and coordination," Journal of Economic Theory, Elsevier, vol. 163(C), pages 699-727.
    2. Hitoshi Matsushima, 2010. "Finitely Repeated Prisoners' Dilemma with Small Fines: Penance Contract," CIRJE F-Series CIRJE-F-720, CIRJE, Faculty of Economics, University of Tokyo.
    3. repec:kbb:dpaper:2011-44 is not listed on IDEAS
    4. Lipman, Barton L. & Wang, Ruqu, 2009. "Switching costs in infinitely repeated games," Games and Economic Behavior, Elsevier, vol. 66(1), pages 292-314, May.
    5. Caruana, Guillermo & Einav, Liran & Quint, Daniel, 2007. "Multilateral bargaining with concession costs," Journal of Economic Theory, Elsevier, vol. 132(1), pages 147-166, January.
    6. Luís M. B. Cabral & Thomas W. Ross, 2008. "Are Sunk Costs a Barrier to Entry?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 97-112, March.
    7. Libich, Jan, 2008. "An explicit inflation target as a commitment device," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 43-68, March.
    8. Luca Lambertini & Raimondello Orsini, 2013. "On Hotelling's ‘stability in competition’ with network externalities and switching costs," Papers in Regional Science, Wiley Blackwell, vol. 92(4), pages 873-883, November.
    9. Miyahara, Yasuyuki & Sekiguchi, Tadashi, 2013. "Finitely repeated games with monitoring options," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1929-1952.
    10. repec:bla:stratm:v:38:y:2017:i:10:p:1953-1963 is not listed on IDEAS
    11. Thomas Norman, 2010. "Cycles versus equilibrium in evolutionary games," Theory and Decision, Springer, vol. 69(2), pages 167-182, August.
    12. Martzoukos, Spiros H. & Zacharias, Eleftherios, 2013. "Real option games with R&D and learning spillovers," Omega, Elsevier, vol. 41(2), pages 236-249.
    13. Spiegler, Ran, 2015. "Agility in repeated games: An example," Economics Letters, Elsevier, vol. 131(C), pages 47-49.
    14. Sonsino, Doron & Sirota, Julia, 2003. "Strategic pattern recognition--experimental evidence," Games and Economic Behavior, Elsevier, vol. 44(2), pages 390-411, August.
    15. repec:spr:jogath:v:47:y:2018:i:1:d:10.1007_s00182-017-0575-9 is not listed on IDEAS
    16. 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.
    17. Rohan Dutta & Ryosuke Ishii, 2013. "Coordinating by Not Committing : Efficiency as the Unique Outcome," Cahiers de recherche 10-2013, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    18. Norman, Thomas W.L., 2009. "Rapid evolution under inertia," Games and Economic Behavior, Elsevier, vol. 66(2), pages 865-879, July.
    19. Kano, Kazuko, 2013. "Menu costs and dynamic duopoly," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 102-118.

    More about this item

    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

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