Information in Repeated Games

Original article (link) posted: 31/08/2005

Let's think about Green and Porter model.
What happens if demand becomes less stochastic so that the firms have better obserbability on their output??

Kandori (1992) "The Use of Information in Repeated Games with Imperfect Monitoring"(RES 59) answers this question in a general framework.

In the paper, using the concept called "quasi-garbling" which is Blackwell's definition of informativeness, Kandori elegantly shows that

in the general model of discounted repeated games with imperfect monitoring, the set of payoffs attainable via pure-strategy sequential equilibria becomes larger (in the sense of set inclusion) as the observability of the past actions increases. The intuition behind the assertion is that the more accurately "cheating" is detected, the easier it is to enforce coordination.

Thus, the answer to the first question is

in an oligopoly model of the Green-Porter type, the best symmetric equilibrium becomes better and the most severe symmetric punishment (the worst equilibrium) becomes more severe, as the demand becomes less noisy.

The papers written by Kandori are all clear and elegant! How come he could write so many great papers... Every time I read his paper, I feel losing my confidence and realize how far where he was from where I am standing now :(

Professor Kandori was my senior thesis advisor at University of Tokyo.

No comments: