INTRAPLAY COMMUNICATION IN REPEATED GAMES

The paper examines repeated games where players have the (possibly costly) option of initiating bargaining over continuation payoffs between plays of the stage game. A solution concept for these augmented games, renegotiation perfectness is used to characterize concepts like subgame perfectness and Pareto perfectness in the underlying repeated game and to extend Pareto perfectness to infinite horizon games. When bargaining is costly, renegotiation may be indispensable off the equilibrium path for supporting renegotiation-perfect outcomes. Sufficient conditions for a renegotiation-perfect profile to support payoffs which are not supported by and not dominated by some subgame-perfect profile are developed in the infinite horizon case. 1994 Academic Press, Inc.