Coalition Formation in Games with Externalities

M.P. Montero

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Abstract

This paper studies an extensive form game of coalition formation with random proposers in a situation where coalitions impose externalities on other players. It is shown that an agreement will be reached without delay provided that any set of coalitions profit from merging. Even under this strong condition, the formation of the grand coalition is not guaranteed. Therefore, the resulting coalition structure will not necessarily be efficient. The results of this model are compared with the related work of Ray and Vohra (GEB, 1999), which assumes that players move in a predetermined order. The game with random proposers tends to give a large advantage to the proposer, whereas the game with a rule of order tends to favour the responders and may not capture the competition between players. The game with random proposers yields more efficient results for some specific classes of games. However, the results of the two games cannot be ranked in general in terms of efficiency.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages40
Volume1999-121
Publication statusPublished - 1999

Publication series

NameCentER Discussion Paper
Volume1999-121

Keywords

  • coalition formation
  • externalities
  • partition function
  • random proposers

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    Montero, M. P. (1999). Coalition Formation in Games with Externalities. (CentER Discussion Paper; Vol. 1999-121). Microeconomics.