Equilibrium Behaviors in Repeated Games

TL;DR

This paper analyzes how reputation-building influences patient players' strategies in repeated games, revealing equilibrium behaviors and providing insights into economic scenarios like entry deterrence and taxation.

Contribution

It characterizes equilibrium action frequencies and introduces a new concentration inequality to analyze reputation effects in repeated games.

Findings

Patient players often adopt Stackelberg actions in equilibrium.

Reputation can significantly refine patient players' strategic behavior.

The paper introduces a novel concentration inequality for analysis.

Abstract

We examine a patient player's behavior when he can build reputations in front of a sequence of myopic opponents. With positive probability, the patient player is a commitment type who plays his Stackelberg action in every period. We characterize the patient player's action frequencies in equilibrium. Our results clarify the extent to which reputations can refine the patient player's behavior and provide new insights to entry deterrence, business transactions, and capital taxation. Our proof makes a methodological contribution by establishing a new concentration inequality.