Dismissals and quits in repeated games (Q2268132): Difference between revisions

Consider a finitely repeated, 2-player game G. Suppose player 1 can decide whether player 2 continues, or is replaced by another player. This threat to terminate creates a good equilibrium/bad equilibrium structure, just as in the Benoi-Krishna theorem (1985), and leads to a subgame perfect equilibrium of G which has high efficiency. When player 2 can quit, then the previous result only holds when 2's outside option is low.