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Sequential Formation of Coalitions through Bilateral Agreements in a Cournot Setting

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  • Inés Macho-Stadler

    ()
    (Department of Economics, Universidad Autónoma de Barcelona)

  • David Pérez-Castrillo

    ()
    (Department of Economics, Universidad Autónoma de Barcelona)

  • Nicolás Porteiro

    ()
    (Department of Economics, Universidad Pablo de Olavide)

Abstract

We study a sequential protocol of endogenous coalition formation based on a process of bilateral agreements among the players. We apply the game to a Cournot environment with linear demand and constant average costs. We show that the final outcome of any Subgame Perfect Equilibrium of the game is the grand coalition, provided the initial number of firms is high enough and they are sufficiently patient.

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File URL: http://www.upo.es/serv/bib/wps/econ0601.pdf
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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 06.01.

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Length: 30 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:pab:wpaper:06.01

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Keywords: Coalition formation; bilateral agreements; Cournot.;

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References

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  1. Ray, D. & Vohra, R., 1996. "A Theory of Endogenous Coalition Structure," Papers 68, Boston University - Industry Studies Programme.
  2. Morton I. Kamien & Israel Zang, 1987. "The Limits of Monopolization Through Acquisition," Discussion Papers 754, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Gautam Gowrisankaran & Thomas J. Holmes, 2002. "Do Mergers Lead to Monopoly in the Long Run? Results from the Dominant Firm Model," NBER Working Papers 9151, National Bureau of Economic Research, Inc.
  4. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-64, July.
  5. DIAMANTOUDI, Effrosyni & XUE, Licun, 2002. "Coalitions, agreements and efficiency," CORE Discussion Papers 2002047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Bloch, Francis, 1996. "Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division," Games and Economic Behavior, Elsevier, vol. 14(1), pages 90-123, May.
  7. Gul, Faruk, 1989. "Bargaining Foundations of Shapley Value," Econometrica, Econometric Society, vol. 57(1), pages 81-95, January.
  8. Houston, Joel F. & James, Christopher M. & Ryngaert, Michael D., 2001. "Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 285-331, May.
  9. Ray, Debraj & Vohra, Rajiv, 1997. "Equilibrium Binding Agreements," Journal of Economic Theory, Elsevier, vol. 73(1), pages 30-78, March.
  10. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  11. Gautam Gowrisankaran & Thomas J. Holmes, 2004. "Mergers and the Evolution of Industry Concentration: Results from the Dominant-Firm Model," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 561-582, Autumn.
  12. repec:fth:tilbur:99121 is not listed on IDEAS
  13. Montero, M.P., 1999. "Coalition Formation in Games with Externalities," Discussion Paper 1999-121, Tilburg University, Center for Economic Research.
  14. Seidmann, Daniel J & Winter, Eyal, 1998. "A Theory of Gradual Coalition Formation," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 793-815, October.
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Cited by:
  1. Audy, Jean-François & D’Amours, Sophie & Rönnqvist, Mikael, 2012. "An empirical study on coalition formation and cost/savings allocation," International Journal of Production Economics, Elsevier, vol. 136(1), pages 13-27.
  2. Fumagalli, Eileen & Nilssen, Tore, 2008. "Waiting to Merge," Memorandum 13/2008, Oslo University, Department of Economics.

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