Bargaining power in repeated games

In this paper, we propose a refinement of the subgame perfect equilibrium concept for infinitely repeated games, selection-consistent perfect equilibrium. This concept reflects the idea that players may not expect future bargaining power to be correlated with bygone actions. The equilibrium payoff set is generated by equilibria with a simple recursive structure. When discounting tends to zero, the equilibrium average payoff set is almost completely determined by the data of the stage game. (C) 2004 Elsevier B.V. All rights reserved.