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Multilateral interactions improve cooperation under random fluctuations

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  • Li, Jin
  • Powell, Michael

Abstract

In an environment subject to random fluctuations, when does an increase in the breadth of activities in which individuals interact together help foster collaboration on each activity? We show that when players, on average, prefer to stick to a cooperative agreement rather than reneging by taking their privately optimal action, then such an agreement can be approximated as equilibrium play in a sufficiently broad relationship. This is in contrast to existing results showing that a cooperative agreement can be sustained only if players prefer to adhere to it in every state of the world. We consider applications to favor exchange, multimarket contact, and relational contracts.

Suggested Citation

  • Li, Jin & Powell, Michael, 2020. "Multilateral interactions improve cooperation under random fluctuations," Games and Economic Behavior, Elsevier, vol. 119(C), pages 358-382.
    • Handle: RePEc:eee:gamebe:v:119:y:2020:i:c:p:358-382
    DOI: 10.1016/j.geb.2019.11.004
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    References listed on IDEAS

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    Cited by:

    1. Ricard Gil & Myongjin Kim & Giorgio Zanarone, 2022. "Relationships Under Stress: Relational Outsourcing in the U.S. Airline Industry After the 2008 Financial Crisis," Management Science, INFORMS, vol. 68(2), pages 1256-1277, February.

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    More about this item

    Keywords

    Repeated games; Relational contracts; Multimarket contact; Favor exchange;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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