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Alternative Definitions of Renegotiation-Proofness in Repeated Games
Alternative Definitions of Renegotiation-Proofness in Repeated Games
30
1800, 1800
40
1500, 2000
2000, 1500
1800 900
1800,
1600, 1600
1200 800
1200,
60
900, 1800
800, 1200
0 0
0,
An SPNE in an infinitely repeated game is strongly renegotiationproof if and only if, after a unilateral deviation by any player in any
period t , the specified post-deviation continuation SPNE payoffs of
all non-deviating players are no less than what their continuation
SPNE ppayoffs
y
would be iff the deviation did not occur in pperiod t.
An SPNE in an infinitely repeated game is weakly renegotiation-proof
if and only if, after a unilateral deviation by any player in any period t,
the specified post-deviation continuation SPNE payoffs of all nondeviating players are no less than what their continuation payoffs
would be if the deviation occurred in every period after t.
30
1800, 1800
40
1500, 2000
2000, 1500
1800 900
1800,
1600, 1600
1200 800
1200,
60
900, 1800
800, 1200
0 0
0,
Firm A
30
30
1800, 1800
40
1500, 2000
60
900, 1800
40
60
2000, 1500
1800, 900
1600, 1600
1200, 800
800, 1200
0, 0
Firm A
30
30
1800, 1800
40
1500, 2000
60
900, 1800
40
2000, 1500
1600, 1600
800, 1200
60
1800, 900
1200, 800
0, 0
Firm A
30
30
1800, 1800
40
1500, 2000
60
900, 1800
40
60
2000, 1500
1800, 900
1600, 1600
1200, 800
800, 1200
0, 0
30
30
1800, 1800
40
1500, 2000
60
900, 1800
40
60
2000, 1500
1800, 900
1600, 1600
1200, 800
800, 1200
0, 0
Consider strategy profile {C= (30; 30); PA= (30; 60); PB= (60; 30)}
- This strategy profile is simple in that the penal code for firm i is the
same irrespective of how and when it cheats
- This strategy profile employs optimal penal codes because the
punished player is held to his maximin payoff
Conclusions: The proposed simple strategy profile rationally sustains
(i.e., credibly and effectively sustains) the maximal cooperation
target{30, 30} if > 2/11.
The proposed simple strategy profile is strongly renegotiation-proof
since p.v. payoff to firm I under the penal code PJ = 1800/(1- )
Here, maximal collusion {30, 30} can be rationally sustained only if
> 2/11 since the proposed strategy specifies optimal penal codes
30
30
1800, 1800
40
1500, 2000
60
900, 1800
40
60
2000, 1500
1800, 900
1600, 1600
1200, 800
800, 1200
0, 0
Consider strategy profile {C= (30; 30); PA= (30; 60); PB= (60; 30)}
Proof that the strategy profile rationally sustains {30, 30}
whenever > 2/11. :
For > 2/11, the strategy profile is
credible as it is SPNE in both punishment phases PA and PB
and effective as it is SPNE in cooperation phase C
collusion constraint in either phase: 1800/(1-) > 2000 + 900./(1- )
low
low
50, 50
medium
32, 60
high
25, 55
Firm A med
60, 32
40, 40
26, 42
high
55, 25
42, 26
30, 30
low
Firm A med
high
low
50, 50
medium
32, 60
high
25, 55
60, 32
55, 25
40, 40
42, 26
26, 42
30, 30
30
30
1800, 1800
40
1500, 2000
60
900, 1800
40
2000, 1500
1600, 1600
800, 1200
60
1800, 900
1200, 800
0, 0
Cooperation target: (30; 30); optimal penal codes: PA = (30; 60), PB = (60; 30)
Result: Cooperation target (30; 30) is sustainable if and only if > 2/11
Optimal penal codes are strongly renegotiation-proof
strategic
compliments
low
low
50, 50
medium
32, 60
high
25, 55
medium
60, 32
40, 40
26, 42
high
55, 25
42, 26
30, 30