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How much can we identify from repeated games?

Abito, Jose Miguel (2015): How much can we identify from repeated games?


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I propose a strategy to identify structural parameters in infinitely repeated games without relying on equilibrium selection assumptions. Although Folk theorems tell us that almost any individually rational payoff can be an equilibrium payoff for sufficiently patient players, Folk theorems also provide tools to explicitly characterize this set of payoffs. I exploit the extreme points of this set to bound unobserved equilibrium continuation payoffs and then use these to generate informative bounds on structural parameters. I illustrate the identification strategy using (1) an infinitely repeated Prisoner's dilemma to get bounds on a utility parameter, and (2) an infinitely repeated quantity-setting game to get bounds on marginal cost and provide a robust test of firm conduct.

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