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Switching Costs in Infinitely Repeated Games

Author

Listed:
  • 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.

Suggested Citation

  • Barton Lipman & Ruqu Wang, 2006. "Switching Costs in Infinitely Repeated Games," Working Papers 1032, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1032
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1032.pdf
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    References listed on IDEAS

    as
    1. Lipman, Barton L. & Wang, Ruqu, 2000. "Switching Costs in Frequently Repeated Games," Journal of Economic Theory, Elsevier, vol. 93(2), pages 149-190, August.
    2. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-554, May.
    3. Dutta Prajit K., 1995. "Collusion, Discounting and Dynamic Games," Journal of Economic Theory, Elsevier, vol. 66(1), pages 289-306, June.
    4. Abreu, Dilip & Dutta, Prajit K & Smith, Lones, 1994. "The Folk Theorem for Repeated Games: A NEU Condition," Econometrica, Econometric Society, vol. 62(4), pages 939-948, July.
    5. Lipman, Barton L. & Wang, Ruqu, 2009. "Switching costs in infinitely repeated games," Games and Economic Behavior, Elsevier, vol. 66(1), pages 292-314, May.
    6. Dutta Prajit K., 1995. "A Folk Theorem for Stochastic Games," Journal of Economic Theory, Elsevier, vol. 66(1), pages 1-32, June.
    7. Drew Fudenberg & David Levine, 2008. "Subgame–Perfect Equilibria of Finite– and Infinite–Horizon Games," World Scientific Book Chapters,in: A Long-Run Collaboration On Long-Run Games, chapter 1, pages 3-20 World Scientific Publishing Co. Pte. Ltd..
    8. 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.
    9. Chakrabarti, Subir K., 1990. "Characterizations of the equilibrium payoffs of inertia supergames," Journal of Economic Theory, Elsevier, vol. 51(1), pages 171-183, June.
    10. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    11. Wen, Quan, 1994. "The "Folk Theorem" for Repeated Games with Complete Information," Econometrica, Econometric Society, vol. 62(4), pages 949-954, July.
    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. Benoit, Jean-Pierre & Krishna, Vijay, 1985. "Finitely Repeated Games," Econometrica, Econometric Society, vol. 53(4), pages 905-922, July.
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    Citations

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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.
    2. 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.
    3. repec:spr:jogath:v:47:y:2018:i:1:d:10.1007_s00182-017-0575-9 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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