Stable Coalition Structures with Open Membership and Asymmetric Firms

Abstract

I study games of coalition formation with open membership where firms form associations in order to decrease their costs before competing on the market. According to previous analyses, only the grand coalition forms at the Nash equilibrium of such games. I show that this result hinges on the assumption of symmetric firms. I therefore introduce asymmetric firms in a game where only two associations can form. I demonstrate that there exists a coalition-proof Nash equilibrium coalition structure in this game, and that when the equilibrium involves two associations, all the members of an association have a higher taste for this association than all nonmembers do. Journal of Economic Literature Classification Numbers: C70, C72, L13.