IDEAS home Printed from https://ideas.repec.org/p/kue/epaper/e-16-006.html
   My bibliography  Save this paper

Repeated Games with Recursive Utility:Cournot Duopoly under Gain/Loss Asymmetry

Author

Listed:
  • Tadashi Sekiguchi
  • Katsutoshi Wakai

Abstract

We study the repeated Cournot duopoly with recursive utility where the players discount gains more than losses. First, as in the standard model of discounted utility, we confirm that the optimal punishment equilibrium has a stick-and-carrot structure. Next, we explore its exact form in relation to the role of the asymmetry in discounting. We find that the discount factor used to evaluate losses controls the deterrence of a given punishment, while the discount factor used to evaluate gains influences the enforceability of the penalty. An increase in one of the two discount factors increases the most collusive equilibrium profit unless full collusion is already sustainable. However, the key to collusion is the loss discount factor: regardless of the level of the gain discount factor, full cooperation can be achieved if the loss discount factor is sufficiently high.

Suggested Citation

  • Tadashi Sekiguchi & Katsutoshi Wakai, 2016. "Repeated Games with Recursive Utility:Cournot Duopoly under Gain/Loss Asymmetry," Discussion papers e-16-006, Graduate School of Economics , Kyoto University.
  • Handle: RePEc:kue:epaper:e-16-006
    as

    Download full text from publisher

    File URL: http://www.econ.kyoto-u.ac.jp/dp/papers/e-16-006.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Shalev, Jonathan, 1997. "Loss aversion in a multi-period model," Mathematical Social Sciences, Elsevier, vol. 33(3), pages 203-226, June.
    2. Chade, Hector & Prokopovych, Pavlo & Smith, Lones, 2008. "Repeated games with present-biased preferences," Journal of Economic Theory, Elsevier, vol. 139(1), pages 157-175, March.
    3. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Obara, Ichiro & Park, Jaeok, 2017. "Repeated games with general discounting," Journal of Economic Theory, Elsevier, vol. 172(C), pages 348-375.

    More about this item

    Keywords

    Cournot duopoly; gain/loss asymmetry; optimal penal code; repeated game; recursive utility; utility smoothing;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kue:epaper:e-16-006. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Graduate School of Economics Project Center). General contact details of provider: http://edirc.repec.org/data/fekyojp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.