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Global dynamics in repeated games with additively separable payoffs

Takashi Kamihigashi and Taiji Furusawa ()

Review of Economic Dynamics, 2010, vol. 13, issue 4, 899-918

Abstract: This paper studies the global dynamics of a class of infinitely repeated two-player games in which the action space of each player is an interval, and the one-shot payoff of each player is additively separable in actions. We define an immediately reactive equilibrium (IRE) as a pure-strategy subgame perfect equilibrium such that each player's action is a stationary function of the opponent's last action. We completely characterize IREs and their dynamics in terms of certain indifference curves. Our results are used to show that in a prisoners' dilemma game with mixed strategies, gradual cooperation occurs when the players are sufficiently patient, and that in a certain duopoly game, kinked demand curves emerge naturally. (Copyright: Elsevier)

Keywords: Immediately reactive equilibria; Additively separable payoffs; Kinked demand; Gradual cooperation; Prisoners' dilemma (search for similar items in EconPapers)
JEL-codes: C73 L13 (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1016/j.red.2010.06.001

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