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Collusive Behaviour, Efficiency and Cheap Talk Negotiation in Repeated Games

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  • Okada, A.
  • Sabourian, H.

Abstract

This paper addresses the relationship between cheap talk negotiation and collusion/efficiency in repeated games by explicitly modelling the negotiation. At each date, players bargain over how to play the continuation game and thereafter they play a stage game G. We consider equilibria that are measurable with respect to the latest agreement - as they are salient/focal features of the past. We show equilibrium payoffs are bounded below by that of a Nash equilibrium of G and are weakly renegotiation-proof. Our main results are: a non-babbling efficient equilibrium exists in many games if the discount factor δ is high, and every equilibrium payoff is either babbling or efficient in the limit as δ → 1. Finally, we check the robustness of the latter result to two perturbations: complexity costs and trustworthy/honourable players. Equilibria that survive the former perturbation are efficient or induce one-shot Nash equilibria and equilibria that survive the latter are efficient.

Suggested Citation

  • Okada, A. & Sabourian, H., 2025. "Collusive Behaviour, Efficiency and Cheap Talk Negotiation in Repeated Games," Janeway Institute Working Papers 2532, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camjip:2532
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    References listed on IDEAS

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