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Group formation: The interaction of increasing returns and preferences' diversity

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  • Gabrielle Demange

Abstract

In a large range of political and economic situations, group formation is driven by two opposite forces : increasing returns to size and to coordination on the one hand, heterogeneity of preferences on the other. An important question is whether competitive pressures, such as described by free mobility and free entry, lead to an efficient and organization of the society into possibly several self-sufficient groups. This chapter reviews some answers to this question, positive and negative, identifies the role of some crucial features, and discusses some difficulties linked with negative externalities and adverse selection. The sustainability of an oligopoly under increasing returns to scale and competition among jurisdictions are two prominent domains of application.

Suggested Citation

  • Gabrielle Demange, 2004. "Group formation: The interaction of increasing returns and preferences' diversity," DELTA Working Papers 2004-30, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:2004-30
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    References listed on IDEAS

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    1. Philippe Jehiel & Suzanne Scotchmer, 2001. "Constitutional Rules of Exclusion in Jurisdiction Formation," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 393-413.
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    4. Sharkey,William W., 1983. "The Theory of Natural Monopoly," Cambridge Books, Cambridge University Press, number 9780521271943.
    5. Guesnerie, Roger & Oddou, Claude, 1988. " Increasing Returns to Size and Their Limits," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 259-273.
    6. Guillaume Haeringer, 2000. "Stable Coalition Structures with Fixed Decision Schme," UFAE and IAE Working Papers 471.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    7. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
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    9. Greenberg, J. & Weber, S., 1991. "Stable Coalition Structures with Unidimensional Set of Alternatives," Papers 9133, Tilburg - Center for Economic Research.
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    Cited by:

    1. Orazio Attanasio & Abigail Barr & Juan Camilo Cardenas & Garance Genicot & Costas Meghir, 2012. "Risk Pooling, Risk Preferences, and Social Networks," American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 134-167, April.
    2. Page Jr., Frank H. & Wooders, Myrna, 2007. "Networks and clubs," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 406-425.
    3. Demange, Gabrielle, 2010. "Sharing information in Web communities," Games and Economic Behavior, Elsevier, vol. 68(2), pages 580-601, March.
    4. Edward Cartwright & Myrna Wooders, 2008. "Behavioral Properties of Correlated Equilibrium; Social Group Structures with Conformity and Stereotyping," Vanderbilt University Department of Economics Working Papers 0814, Vanderbilt University Department of Economics.
    5. Sun, Ning & Trockel, Walter & Yang, Zaifu, 2008. "Competitive outcomes and endogenous coalition formation in an n-person game," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 853-860, July.

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