In indefinitely repeated interaction almost any outcome above the minimum can be sustained as an equilibrium, so theory alone cannot predict which.
Friedman's 1971 result, called folk because it circulated for years before anyone published it. Its consequence is deflating: repeated-game theory explains why cooperation is possible, not why it happens.
In practice
- A long-running supplier relationship could settle at almost any split of the margin, and which split it settled at is history rather than theory.
- Two departments sharing a budget line reach a stable convention that neither could derive from first principles.
- Further reading
- Wikipedia
- Subject
- Games & Strategic Interaction
- Essay
- What is provable, and what people actually do