Switching Costs in Infinitely Repeated Games
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  do have analogs in the case of infinitely repeated games. We also discuss whether the results here or those in Lipman–Wang  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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|Date of creation:||Jun 2005|
|Date of revision:||Jan 2006|
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Boston University - Department of Economics - Working Papers Series
WP2005-021, Boston University - Department of Economics, revised Jan 2006.
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