UCL Discovery

Abstract

The paper analyzes reputation effects in perturbed repeated games with discounting. If there is some positive prior probability that one of the players is committed to play the same (pure) action in every period, then this provides a lower bound for her equilibrium playoff in all Nash equilibria. This bound is tight and independent of what other types have positive probability. It is generally lower than Fudenberg and Levine's bound for games with a long-run player facing a sequence of short-run opponents. The bound cannot be improved by considering types playing finitely complicated history-dependent commitment strategies. (C) 1996 Academic Press, Inc.