Coalition Formation in Games with Externalities

Maria Montero

Dynamic Games and Applications, 2023, vol. 13, issue 2, No 7, 525-548

Abstract: Abstract This paper studies an extensive form game of coalition formation with random proposers in games with externalities. It is shown that an agreement will be reached without delay if any set of coalitions profits from merging. Even under this strong condition, the equilibrium coalition structure is not necessarily efficient. There may be multiple equilibria even in the absence of externalities, and symmetric players are not necessarily treated symmetrically in equilibrium. If the grand coalition forms without delay in equilibrium, expected payoffs must be in the core of the characteristic function game that assigns to each coalition its equilibrium payoff. Compared with the rule of order process of Ray and Vohra (Games Econ Behav 26:286–336, 1999), the bargaining procedure with random proposers tends to give a large advantage to the proposer, whereas the bargaining procedure with a rule of order tends to favor the responders. The equilibria of the two procedures cannot be ranked in general in terms of efficiency.

Keywords: Coalition formation; Externalities; partition function; Random proposers; Core; Multiple equilibria (search for similar items in EconPapers)
JEL-codes: C71 C72 C78 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Coalition Formation in Games with Externalities (2021)
Working Paper: Coalition Formation in Games with Externalities (1999)
Working Paper: Coalition Formation in Games with Externalities (1999)
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DOI: 10.1007/s13235-022-00460-0

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