Restricted feedback in long term relationships

Abstract

This paper studies long term relationships, modeled as repeated games, with restricted feedback. Players condition current play on summary statistics of past play rather than the entire history, as may be the case in online markets. Our state strategy equilibrium framework allows for arbitrary restrictions on strategies. We derive a recursive characterization for the set of equilibrium payoffs similar to that of Abreu, Pearce, and Stacchetti (1986, 1990) [2,3] for perfect public equilibria and show that the set of equilibrium payoffs is the largest fixed point of a monotone operator. We use our characterization to derive necessary and sufficient conditions for efficient trade in a repeated product choice game where costumers condition their purchase decisions only on the last performance signal.