Repeated games with voluntary information purchase.

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Abstract

We consider discounted repeated games in which players can voluntarily purchase information about the opponents' actions at past stages. Information about a stage can be bought at a fixed but arbitrary cost. Opponents cannot observe the information purchase by a player. For our main result, we make the usual assumption that the dimension of the set fir of feasible and individually rational payoff vectors is equal to the number of players. We show that, if there are at least three players and each player has at least four actions, then every payoff vector in the interior of the set fir can be achieved by a nash equilibrium of the discounted repeated game if the discount factor is sufficiently close to 1. Therefore, nearly efficient payoffs can be achieved even if the cost of monitoring is high. We show that the same result holds if there are at least four players and at least three actions for each player. Finally, we indicate how the construction can be extended to sequential equilibrium.
Original languageEnglish
Pages (from-to)126-145
Number of pages20
JournalGames and Economic Behavior
Volume66
DOIs
Publication statusPublished - 1 Jan 2009

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