Switching Costs in Infinitely Repeated Games

Barton Lipman () and Ruqu Wang ()

No WP2005-021, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

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–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.

Pages: 45 pages
Date: 2005-06, Revised 2006-01
New Economics Papers: this item is included in nep-gth
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Journal Article: Switching costs in infinitely repeated games (2009)
Working Paper: Switching Costs In Infinitely Repeated Games (2006)
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