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Endogenous Formation of Competing Partnership with Moral Hazard

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  • Espinosa Alejos, María Paz
  • Macho Stadler, Inés

Abstract

We analyze the formation of partnerships as a sequential choice-of-sizes game with moral hazard within coalitions; once formed, partnerships compete a la Cournot in the marketplace. We show that when moral hazard within coalitions is very severe, no partnership will form. However, when moral hazard is not too severe the coalition structure will be either similar or more concentrated than without moral hazard. We also show that, while without moral hazard too many coalitions are formed in equilibrium as compared to the efficient outcome, moral hazard may be responsible for an inefficiency of opposite sign.

Suggested Citation

  • Espinosa Alejos, María Paz & Macho Stadler, Inés, 2002. "Endogenous Formation of Competing Partnership with Moral Hazard," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    • Handle: RePEc:ehu:dfaeii:6810
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    References listed on IDEAS

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    1. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    2. 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.
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    Cited by:

    1. Ana, MAULEON & Vincent, VANNETELBOSCH, 2003. "Farsightedness and Cautiousness in Coalition Formation," LIDAM Discussion Papers IRES 2003003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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