Endogenous Coalition Formation in Cooperative Oligopolies

Abstract

Coalition formation among firms in a cooperative oligopolistic market is endogenously derived in terms of the relevant market characteristics: market demand, firm costs, and the behavioral assumptions that every possible coalition of firms makes about firms that are not in the coalition. This is done by defining different games in characteristic function form, each game corresponding to a different assumption about how a coalition's opponents will respond. By establishing cooperative equilibria that cannot be upset by any firm acting alone or any group of firms acting in concert, the authors are able to derive coalition formation in the market endogenously. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.