Rafael Rob () (University of Pennsylvania) Tadashi Sekiguchi () (Kobe University)
Abstract
We consider a repeated duopoly game where each firm privately chooses its investment in quality, and realized quality is a noisy indicator of the firm's investment.We focus on turnover equilibria in which a low-quality realization is penalized by lowering future demand of the firm that delivered this quality. We determine when a turnover equilibrium that gives higher welfare than the static equilibrium exists and how this relates to market fundamentals. We also derive comparative statics properties, and we characterize a set of investment levels and, hence, payoffs that turnover equilibria sustain. Ordering information: This article can be ordered from http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi?action=buy&year=2006&issue=sum&page=341&tid=30492&sc=1869P1N9.
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