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Coalition Formation in Games with Externalities

Montero, Maria

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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.

Journal Article Type Article
Acceptance Date Jul 11, 2022
Online Publication Date Aug 6, 2022
Publication Date Aug 6, 2022
Deposit Date Aug 9, 2022
Publicly Available Date Aug 10, 2022
Journal Dynamic Games and Applications
Print ISSN 2153-0785
Electronic ISSN 2153-0793
Publisher Springer Science and Business Media LLC
Peer Reviewed Peer Reviewed
Keywords Applied Mathematics; Computational Mathematics; Computational Theory and Mathematics; Computer Graphics and Computer-Aided Design; Computer Science Applications; Statistics and Probability; Economics and Econometrics
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