Sequential Formation of Coalitions through Bilateral Agreements


We study a sequential protocol of endogenous coalition formation based on a process of bilateral agreements among the players. We apply the game to a Cournot environment with linear demand and constant average costs. We show that the final outcome of any Subgame Perfect Equilibrium of the game is the grand coalition, provided the initial number of firms is high enough and they are sufficiently patient.

Published as: Sequential Formation of Coalitions Through Bilateral Agreements in a Cournot Setting in International Journal of Game Theory , Vol. 34, No. 2, 207--228, January, 2006