ON RENEGOTIATION-PROOF EQUILIBRIUM UNDER IMPERFECT MONITORING

Van Damme (J. Econ. Theory 47 (1989), 206-217) shows that in the Green-Porter imperfect monitoring model the only weakly renegotiation-proof equilibrium (WRPE) is to play the stage game Cournot equilibrium at all stages. We first find a restriction that a WRPE will impose on the stage game actions. Then using this restriction we construct an example to show that van Damme's conclusion is not necessarily correct. We explain why van Damme's argument cannot apply. Finally, we show that despite this fact, the monopolistic profit cannot be attained by a WRPE. (C) 1995 Academic Press, Inc.