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Coalition Formation, Bargaining and Investments in Networks with Externalities: Analysis of the Eurasian Gas Supply Network

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  • Ikonnikova, Svetlana

Abstract

We present a new methodology to study how upstream (e.g. producers) and downstream (e.g. transiters) players form coalitions, bargain over joint profit sharing and invest. Within coalitions players combine resources, coalitions compete on a market. Profit of each coalition depends on the cooperation among the outside players. Hence, we consider a game with externalities. To find the equilibrium coalition structure and the expected payoffs, we use the solution proposed by Maskin (2003). Payoffs reflect the bargaining power and depend on capacities of players. We show, how investment options available to players matter. We apply the study to analyze the Eurasian gas supply network. Russia and Turkmenistan - producers and Ukraine, Belorus, Azerbaijan, Iran - transiters form coalitions to supply gas and bargain over profit sharing. Besides, the players invest in pipelines. We derive the bargaining power of the countries from the architecture of the network and calculate the strategic value of the different pipeline projects.

Suggested Citation

  • Ikonnikova, Svetlana, 2005. "Coalition Formation, Bargaining and Investments in Networks with Externalities: Analysis of the Eurasian Gas Supply Network," MPRA Paper 915, University Library of Munich, Germany, revised Nov 2006.
    • Handle: RePEc:pra:mprapa:915
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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.
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    More about this item

    Keywords

    Partition Function; Coalitional Bargaining; Coalition Formation; Externalities; Gas Supply;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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