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Sequential Formation of Coalitions Through Bilateral Agreements in a Cournot Setting

  • Inés Macho-Stadler

    ()

  • David Pérez-Castrillo

    ()

  • Nicolás Porteiro

    ()

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://hdl.handle.net/10.1007/s00182-006-0017-6
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Article provided by Springer in its journal International Journal of Game Theory.

Volume (Year): 34 (2006)
Issue (Month): 2 (August)
Pages: 207-228

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Handle: RePEc:spr:jogath:v:34:y:2006:i:2:p:207-228
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  1. 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.
  2. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-64, July.
  3. Diamantoudi, Effrosyni & Xue, Licun, 2007. "Coalitions, agreements and efficiency," Journal of Economic Theory, Elsevier, vol. 136(1), pages 105-125, September.
  4. 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.
  5. Debraj Ray & Rajiv Vohra, 1998. "A Theory of Endogenous Coalition Structures," Working Papers 98-1, Brown University, Department of Economics, revised Jan 1998.
  6. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. 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.
  8. 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.
  9. Ray, D. & Vohra, R., 1993. "Equilibrium Binding Agreements," Papers 21, Boston University - Department of Economics.
  10. 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.
  11. Gul, Faruk, 1989. "Bargaining Foundations of Shapley Value," Econometrica, Econometric Society, vol. 57(1), pages 81-95, January.
  12. 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.
  13. repec:fth:tilbur:99121 is not listed on IDEAS
  14. Montero, M.P., 1999. "Coalition Formation in Games with Externalities," Discussion Paper 1999-121, Tilburg University, Center for Economic Research.
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