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Global Dynamics in Repeated Games with Additively Separable Payoffs

Takashi Kamihigashi and Taiji Furusawa ()

No DP2010-04, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

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 their 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 observable mixed strategies, gradual cooperation occurs when the players are sufficiently patient, and that in a certain duopoly game, kinked demand curves emerge naturally.

Keywords: Immediately reactive equilibria; Additively separable payoffs; Kinked demand; Gradual cooperation; Prisoners' dilemma (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010-02, Revised 2010-06
New Economics Papers: this item is included in nep-gth
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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-04.pdf Revised version, 2010 (application/pdf)

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Journal Article: Global dynamics in repeated games with additively separable payoffs (2010) Downloads
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