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We consider a repeated duopoly game where each firm chooses its investment in quality, and realized quality is a noisy indicator of the firm's investment. We derive reputation equilibria, whereby consumers `discipline' a firm by switching to its rival in case its realized quality is too low. The model predicts that firms with good reputation charge a higher price, sell a bigger quantity and have a higher stock-market capitalization. Every so often, the market is subjected to turnover, whereby the highquality / good reputation firm loses market share, lowers its price and its capitalization suffers, while its rival gains market share, raises its price and enjoys increased capitalization. We examine properties of reputation equilibria. In particular, we show that the equilibrium is not efficient or nearly efficient even as the discount factor goes to 1. Download Paper
We present three examples of finitely repeated games with public monitoring that have sequential equilibria in private strategies, i.e., strategies that depend on own past actions as well as public signals. Such private sequential equilibria can have features quite unlike those of the more familiar perfect public equilibria: (i) making a public signal less informative can create Pareto superior equilibrium outcomes; (U) the equilibrhun finalperiod action profile need not be a stage game equilibrium; and (iii) even if the stage game has a unique correlated (and hence Nash) equilibrium, the first-period action profile need not be a stage game equilibrium. Download Paper
We describe the maximum efficient subgame perfect equilibrium payoff for a player in the repeated Prisoners' Dilemma, as a function of the discount factor. For discount factors above a critical level, every efficient, feasible, individually rational payoff profile can be sustained. For an open and dense subset of discount factors below the critical value, the maximum efficient payoff is not an equilibrium payoff. When a player cannot achieve this payoff, the unique equilibrium outcome achieving the best efficient equilibrium payoff for a player is eventually cyclic. There is an uncountable number of discount factors below the critical level such that the maximum efficient payoff is an equilibrium payoff. Download Paper