Coalitions and networks in industrial organization

Handbook of Social Economics, 2011

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.

Journal of Economic Theory, 2007

If agents negotiate openly and form coalitions, can they reach efficient agreements? We address this issue within a class of coalition formation games with externalities where agents' preferences depend solely on the coalition structure they are associated with. We derive Ray and Vohra's [Equilibrium binding agreements, J. Econ. Theory 73 (1997) 30-78] notion of equilibrium binding agreements using von Neumann and Morgenstern [Theory of Games and Economic Behavior, Princeton University Press, Princeton, 1944] abstract stable set and then extend it to allow for arbitrary coalitional deviations (as opposed to nested deviations assumed originally). We show that, while the extended notion facilitates the attainment of efficient agreements, inefficient agreements can nevertheless arise, even if utility transfers are possible.

Proceedings of the 18th IFAC World Congress, 2011

A supply network design problem is addressed under a price elastic demand from the market. It is formulated as a biform game, combining a strategic subgame with a cooperative subgame. The cooperative subgame has a quadratic objective function. The results of this game are the winning coalition of manufacturing firms and the payoff profile associated with it. The proposed payoff allocation policy is shown to be fair, efficient and individually rational. Coalitional stability is conditioned on the game convexity, which is not always verified. Global profit optimality is obtained if the manufacturing network is directly facing the market. In the presence of an autonomous retailer between the manufacturing network and the market, the supply chain output is not globally optimal any more.

In this paper we review a number of coalitional solution concepts for the analysis of cartel and merger stability in oligopoly. We show that, although so far the industrial organization and the cooperative game theoretic literature have proceeded somehow independently on this topic, the two approaches are highly inter-connected. We show that different assumptions on the behaviour and on the timing of the coalitions of firms yield very different results on the associations of firms which are stable. We conclude by reviewing some recent extensions of the coalitional analysis to oligopolistic markets with heterogeneous firms and incomplete information.

2013

We develop a theoretical framework that allows us to study which bilateral links and coalition structures are going to emerge at equilibrium. We define the notion of coalitional network to represent a network and a coalition structure, where the network specifies the nature of the relationship each individual has with her coalition members and with individuals outside her coalition. To predict the coalitional networks that are going to emerge at equilibrium we propose the concepts of strong stability and of contractual stability. Contractual stability imposes that any change made to the coalitional network needs the consent of both the deviating players and their original coalition partners. Requiring the consent of coalition members under the simple majority or unanimity decision rule may help to reconcile stability and efficiency. Moreover, this new framework can provide in-sights that one cannot obtain if coalition formation and network formation are tackled separately and independently.

1995

W A 7 e present a theory for predicting how business firms form alliances to develop and sponsor technical standards. Our basic assumptions are that the utility of a firm for joining a particular standard-setting alliance increases with the size of the alliance and decreases with the presence of rivals in the alliance, especially close rivals. The predicted alliance configurations are simply the Nash equilibria, i.e., those sets of alliances for which no single firm has an incentive to switch to another alliance. We illustrate our theory by estimating the choices of nine computer companies to join one of two alliances sponsoring competing Unix operating system standards in 1988. (Standardization; Alliance; Computer Industry; Unix)

Journal of Business & Industrial Marketing, 2001

The study of interorganisationalcooperation has gained increased currency. An important empirical and conceptual contribution in this field owes much to the network approach. The picture provided by the network approach contrasts with other models that regard cooperation as a mere contractual and legal inter-corporate connection. Whilst accepting the existence of formal types of collaborative arrangements, the network approach emphasises the importance of informal and emergent cooperation. This paper is an attempt to extend the current perspective by focusing on interorganisational cooperation in the context of collective action phenomena. These usually involve a large number of actors concerned with the formulation of market rules, the prevention of instability and disorder and, in general, the promotion or defence of their mutual interests. The paper offers an institutional explanation of why and how collective actions emerge and influence the shape and evolution of industrial networks.

Games and Economic Behavior, 1999

Consider an environment with widespread externalities, and suppose that binding agreements can be written. We study coalition formation in such a setting. Our analysis proceeds by defining on a partition function an extensive-form bargaining game. We establish the existence of a stationary subgame perfect equilibrium for such a game. Our main results are concerned with the characterization of equilib-Ž rium coalition structures. We develop an algorithm that generates under certain . conditions an equilibrium coalition structure. Our characterization results are especially sharp for symmetric partition functions. In particular, we provide a uniqueness theorem and apply our results to a Cournot oligopoly. Journal of Economic Literature Classification Numbers: C71, C72, C78, D62. ᮊ

Games and Economic Behavior, 2000